Reference no: EM132064832

The employees of a leading mail-order computer software companyare secretly thinking of breaking away to form their own rivalcompany. This would require an investment of $3 million and theemployees will make the decision largely on the basis of the netpresent value of this investment. To help them with their decision arisk analysis model has been formulated. Development of the modelinvolved estimating a large number of probabilities including thoseset out below:(a) probability distributions for the size of the market (measuredin total turnover) for each of the next five years - following therecent launch of a major new international software product,the employees have experienced a buoyant market over the lastfew months;(b) probability distributions of the market share that could beobtained by thenewcompany in each of the next five years - thesedistributions were obtained by first estimating a most likelyvalue and then determining optimistic and pessimistic values;(c) the probability that magazine advertising costs would increaseover the next five years - this was considered to be less likelythan an increase in advertising costs resulting from increasedcosts of paper and an associated fall in the number of computermagazines.Discuss the heuristics which the employees might have employedto estimate these probabilities and any biases which might haveemanated from the use of these heuristics.The employees of a leading mail-order computer software company are secretly thinking of breaking away to form their own rival company. This would require an investment of $3 million and the employees