The expected profit before interest and tax is $101·7m. This is calculated as an expected value which is dependent on debatable probability estimates. The benefit of using expected values is that it simplifies the various possibilities into one number.
However, the underlying problem with this method is that the expected profit only makes sense if the project will be done a number of times, as then the use of probabilities makes sense as in the long run the expected return will be achieved.
The probabilities are for the market’s possible reactions to the change in sourcing policy but as MS is shifting all footwear production, this will be a one-off event. So, the outcome will be one of $94·7m, $103·5m or $111·9m – not $101·7m,though the variation among these is not fundamental in the context of an annual operating profit for MS of $71m.
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