Reference no: EM133506235

Question

Adriana owns My Best Friend, a pet grooming boutique. A high-end developer purchased a large tract of land nearby and is constructing luxury condominium townhomes. According to city records, once the project is completed there will be approximately 180 new families in her immediate service area. Adriana is considering hiring a part-time groomer at an additional cost of $18,500 per year in wages. She estimates a possible increase of $27,500 in net revenue as a result of increased business brought about by this change to the neighborhood. However, there is also a chance of decreased demand for services, should the bylaws of the owners' association prohibit pets, particularly coupled with existing competition from grooming services offered by large retail chain stores such as PetSmart. She projects a possible loss of $16,000 off last year's net revenue. Data show that 70% of regional associations allow pets; whereby, the other 30% are pet-free communities. Adriana believes that if she does not hire the part-time worker, her business would generate the same revenue as the prior year.

Do you think Adriana should hire a groomer? Support your objective advice using quantitative data analysis by applying probability theory relative to the estimated value of hiring the new groomer. Your explanation should include (1) a decision tree diagram (using Excel) to assist in evaluating Adriana's dilemma; and (2) a recommendation of a course of action, which explicitly explains why Adriana should take your counsel. Identify uncertainty and risk, and explain the probable outcomes using the decision tree diagram and any numerical data to back up your position.