IB Business Management SL 6.1.6 Decision Trees Questions

Nha Trang Bicycles (NTB)
Chinh Pham offers daily rentals of bicycles at the seaside resort of Nha Trang in Vietnam. He operates as a sole trader under the name Nha Trang Bicycles (NTB). The business rents mostly to young tourists, who enjoy riding bicycles on the roads that run alongside the beautiful beaches. Many other businesses in the area also offer bicycle rental. Because of the intense competition, the price of renting a bicycle is low.
In addition to offering bicycle rental, N T B is considering two options:
- Option 1: offer motorcycle rental. Total initial cost to purchase 10 motorcycles: $\$120000$.
- Option 2: offer car rental. Total initial cost to purchase 5 cars: $\$110000$.
The following shows the expected total net income from both options (all figures in $000s):

The motorcycles would typically be rented by young tourists on a daily basis. The cars would be rented for longer periods (one week on average) by older customers with families. Chinh has no experience with this market segment. A concern for Chinh is the impact that the increased scale of operation will have on his ability to manage the business. A local pressure group argues that cars will harm the environment. Another concern is that motorcycles are very noisy and would disturb the quiet, peaceful feel of the seaside resort.

Analyse whether N T B should purchase the 10 motorcycles (Option 1) or the 5 cars (Option 2).