Dra Fast Ferment

Topics: Risk, Decision theory, Worst-case scenario Pages: 11 (2556 words) Published: March 22, 2013

The examination will last for TWO (2) hours.

The exam is open book. You are allowed to use the course pack, class handouts and any other materials that relate to the course.

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The examination paper consists of 10 questions:
You should answer ALL of the questions.

Make explicit any assumptions underlying your answers, interpret your








recommendations. But keep your answers short and to the point. In grading, importance will be attached to the clarity and conciseness of your answers. Good luck!


FastFerment is a start-up venture started by UCL scientists and engineers. The firm has discovered an enzyme which accelerates the evolution of the mold Aspergillus Orgzae, which is used for making traditional rice-based alcoholic drinks (rice wines) in East Asia such as Sake or Makgeolli. W hen this powder is included in the production of the rice wines, the production lead time is shortened from 10 days to 3 days without affecting the taste or quality of the wine, as it accelerates the fermentation of the rice. Thus, the powder can substantially increase the production capacity for the rice-wine manufacturers and provide them with a competitive advantage. Recently, FastFerment has perfected the technology of genetically engineering and mass producing this accelerating enzyme and storing it in a powder form. They are currently formulating strategies to commercialize the powder by selling the powder to manufacturers. Currently, they estimate there are 156 rice wine manufacturers, but this could be as less as 140, as existing firms may no longer be active, and as many as 190, as there are recent new entrants to the market as the rice wines have become popular in recent years. Because the powder is new, they expect only a few early adopters would be interested in the product. The y expect between 5~10% of the firms to be their potential buyers, with no specific percentage being greater than the other. The price they would charge for 1 kg of the powder would depend on the cost of manufacturing the powder as well as the value it delivers to each manufacturer. After conducting initial market research, they expect an average manufacturer to be willing to pay as high as £950/kg, but as low as £400/kg depending on the initial negotiations. They expect the selling price to be £550/kg. Moreover, it is uncertain how much quantity each manufacturer would want to buy, which will depend on their current production capacity, but they are estimating anywhere between 100kg to 400kg per firm. The founders agree that they would need to hire professional sales people with the necessary knowledge of the science of the powder to help them sell to each manufacturer. They do not know how many will join, but they have made an offer to 6, and expect between 4 and 6 to join FastFerment, with each number being equally likely. The annual wage will be given in terms of salary (no commission), and it is expected to be £50,000, but it is negotiable between £45,000 and £75,000 depending on their qualifications and experience. FastFerment is also examining the cost associated with production. While they have perfected the technology to manufacture the powder, they currently do not have the manufacturing plant set up to accommodate the potential demand. Initial estimates show that the fixed cost associated with setting up a manufacturing plant is at least £300,000 and at most £600,000, with £500,000 being the most likely. The variable cost for producing 1kg of the powder is expected to be £200/kg, but this is also variable by 10% in either direction.

Rice wine manufacturers
adopters (%)
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