question archive 1) ILY Construction has been asked to submit a proposal for developing a new product
1) ILY Construction has been asked to submit a proposal for developing a new product
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1) ILY Construction has been asked to submit a proposal for developing a new product.
The cost of preparation is P12,000.00. It is estimated that if ILY submits a proposal, the chance that it will receive the contract is 50%. It is not certain that the product can actually be developed, but there are three methods of development, of which one should be chosen. Method A will cost P120,000 and has 80% chance of success. Method B will cost P50,000 with a 60% probability of success. Method C will cost P30,000 and the probability of success is 45%. If the company receives the contract and supplies the product, it will receive P8,000,000. No penalty is charged for failing to produce the product. Should ILY Construction prepare the proposal? Explain why?
2. In problem number 1, suppose there is a penalty of P100,000 if the company fails to develop the product. Should the company prepare proposal? Why?
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Answer:
1.) Yes, ILY Construction should prepare the proposal because in a 50% chance to receive the contract, they will only gamble P12,000.00 compared to P8,000,000 contract. And there is no penalty charged for failing to produce the product. ILY Construction will win the contract or just lose P12,000.00. Preparing the proposal best fit the situation.
2.) No, ILY Construction should not prepare the proposal because they might win the contract worth P8,000,000 in a 50% chance but they would likely to lose P112,000.00. In bidding project proposal, a penalty charged is normal if the contract is already awarded and not still for bidding.
