What is the downside and the upside of the company

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Reference no: EM133298718

Topic: Alpha Constructions is in the process of deciding how to proceed with the decision on presenting bids for two infrastructure projects (Road and Bridge) from a government department. The company has three options: • tender for Road only; or • tender for Bridge only; or • tender for both Road and Bridge. If bids are submitted the company will incur additional costs. These costs will have to be entirely recouped from the contract price. The risk, of course, is that if their bid is unsuccessful the company will incur a loss. The cost of tendering for contract for the road project only is $50,000. The additional supply cost if the bid is successful would be $18,000. The cost of tendering for contract bridge project only is $14,000. The additional supply cost if the bid is successful would be $12,000. The cost of tendering for both the road and bridge projects are $55,000. The additional supply cost if those bids are successful would be $24,000. For each contract, possible tender prices have been determined. In addition, subjective assessments have been made of the probability of getting the contract with a particular tender price as shown below. Note here that the company.

Option	Possible Tender Prices	Probability of getting the contract
Road Project Only	130,000	0.20 (not getting 0.80)
	115,000	0.85 (not getting 0.15)

Bridge Project Only	70,000	0.15 (not getting 0.85)
	65,000	0.80 (not getting 0.20)
	60,000	0.90 (not getting 0.10)

Road and Bridge Projects	190,000	0.05 (not getting 0.95)
	140,000	0.65 (not getting 0.35)

Question 1: What do you suggest the company should and why?
Question 2: What is the downside and the upside of your suggested course of action?

Reference no: EM133298718

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