Factory outlet store
$100,000 after 15 years
NPW values taken from 14.24low, 14.24average, and 14.24high spreadsheets, computed at 15%
If store is open 15 years, should I open it?
How much would I pay to know true state of nature?
Based on these results, the outlet store should be opened.
There is an expected NPW of $1,223,000 from opening the store.
There is also a 70% probability of having a positive NPW.
I would be willing to pay $218,400 to know the true state of nature.
This is the weighted NPW of the loss in low demand, which I would save by not opening the store in
a period of low demand.
Market survey available for $1000.
Determine strategy that maximizes expected payoff after survey.
Compute new EVPI.