Calculator Allowed: Yes



Transcription of this question: Revive Livre (RI.)Revive Livre (RL), a bookshop in central London, has one Of the largest collections Ofsecond-hand books in Europe. RL operates as a partnership Of two brothers, James and Nick Cusack.The bookshop is known for its untidy store layout and lack Of space. These features have given thebookshop its memorable promotional catchphrase, “Hard to find but worth the time”, which hasgenerated substantial brand value through word-of-mouth promotion. RL claims that it can find andorder any second-hand book.Changes in reading habits and technology have impacted on RL The availability Of second-handbooks from online competitors such as Amazon has become a real concern. Despite the popularityOf RL, there has been new negative feedback on customer service and the size Of the bookshop.Customers have complained that it is too time-consuming to find a specific book. A liquidityproblem has also emerged. RL is holding too much working capital in unsold second-hand books.James has identified three options Of physical expansion for RL_ He argues that all options wouldprovide a better service to customers and help with the liquidity problem if they proved successful.The estimated cost and financial return for each option is given below (for all options the probabilityof being successful is 0.6 and the probability Of not being successful is 0.4):Option1 _ Purchase additional storages nearb2. Purchase the building nextdoor to expand the currentbookshop:(a) without a café(b) with a café3 _ Move the bookshop to alarge shopping centre outsideOf central LondonCostUKE200000900000Extra 200 OOO1600000Financial return ifsuccessful (UKE40000020000002 sooooo2 500000Financial return ifnot successful UKE150 ooo400 ooo-100 ooo1 ooo ooo(This question continues on the following page)(Question I continued)Nick has a completely different strategic vision for RL, which he believes is a less risky and cheapersolution to the store’s liquidity and customer service problems. He argues to keep the original centralLondon bookshop and set up an e-commerce facility The web site will also attract new customers andNick believes many second-hand books in the shop may finally be sold.(a)(b)(d)Define the following terms:(i) partnership(ii) working capital.Explain two disadvantages for RL Of having too much working capital inunsold second-hand books.(i) Construct a fully labelled decision tree for James’ “three options Ofphysical expansion for RI,”. Calculate the predicted outcome for eachoption and identify the most profitable option (show all your working).(ii) Explain one advantage and one disadvantage for RL Of using adecision tree as a decision-making tool.Contrast James ‘ strategy ofphysical expansion with Nick’s e-commerce strategy.[2 marks][2 marks][4 marks][7 marks][4 marks][6 marks]

Leave a Reply