Instructions

Read the following case - let and answer the question that follow

Krishna Reddy was the head of a pharmaceutical company that was trying to develop a new product. Reddy, along with his friend Prabhakar Rao, assessed that such products had mixed success. Reddy and Rao realized that if a new product (a drug) was a success, it may result in sales of 100 crores but if it is unsuccessful, the sales may be only 20 crores. They further assessed that a new drug was likely to be successful 50% of times. Cost of launching the new drug was likely to be 50 crores.

Question 37

Now, Reddy and Rao were in a quandary whether the company should go ahead and market the drug. They
contacted Raj Adduri, a common friend for advice. Adduri was of the opinion that given the risky nature of the launch, it may be a better idea to test the market. Rao and Reddy realized test marketing would cost 10
crores. Adduri told them the previous test marketing results have been favourable 70% of times and success rate of products favourably tested was 80%. Further, when test marketing results were unfavourable; the products have been successful 30% of the times.

How much profit can the company expect to make if the product is launched after favourable test marketing results(assume there are no additional costs)?

Solution

Total Cost = 50+10=60 Cr

Chances of success after favorable results= 80%

Expected return = 100$$\times\ $$0.8+ 20$$\times\ $$0.2=84Cr

Expected profit= 84-60=24Cr

Create a FREE account and get:

All Quant Formulas and shortcuts PDF
XAT previous papers with solutions PDF
XAT Trial Classes for FREE

CAT Quant Questions | CAT Quantitative Ability

CAT Quadratic Equations Questions CAT Inequalities Questions CAT Averages Questions CAT Linear Equations Questions CAT Percentages Questions

CAT DILR Questions | LRDI Questions For CAT

CAT Quant Based DI Questions CAT Table with Missing values Questions CAT Selection With Condition Questions CAT Charts Questions CAT Routes And Networks Questions

CAT Verbal Ability Questions | VARC Questions For CAT

CAT Reading Comprehension Questions CAT Verbal Ability Questions CAT Critical Reasoning Questions CAT Odd One Out Questions CAT Vocabulary Questions

XAT 2014

CAT Quant Questions | CAT Quantitative Ability

CAT DILR Questions | LRDI Questions For CAT

CAT Verbal Ability Questions | VARC Questions For CAT

Free Topicwise Questions

Login to your Cracku account

Hello! 👋

Ready to Unlock Your Success?

Please Enter Your OTP

Please enter the following details

Create a free Cracku account