A local entrepreneur, Hairul, wishes to establish a business but has yet to decide if he should sell clothing, technology-based accessories, or household items. In order to start the company, he needs to raise capital to cover the operating costs for at least the first six months of his business. Firstly, he could take a loan of RM200,000 at 10% interest with a 60% chance of success in securing the loan. Secondly, he could offer shares to his family members and friends with a 5% dividend, and he estimates that he would have an 80% chance of raising a total of RM150,000 in total investment from them. Thirdly, he could instead use his savings amounting to RM120,000 as his startup capital.
Hairul knows that the probability of a clothing business to be successful is 30% should the demand be high, 40% should the demand be moderate, and 30% should the demand be low. Whereas, the probability for a technology-based accessories business to be successful is 30%, 50%, and 20% should the demand turn out to be low, moderate, and high, respectively. Accordingly, for a household items business, the probabilities are 40%, 10%, and 50%, respectively.
According to his market research, profit projections based on the capital amount for each financing source are 200% for high demand, 150% for medium demand, and 110% for low demand. Considering only the 1st-year financing cost, what should be the strategy chosen by Hairul? You are required to draw a decision tree to support your analysis and to provide detailed working for every required computation.