Problem 18

Problem 18 - 30,000 10,000 Nimnot 85,000 40,000 Expected...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 12 Problem 18 Market Conditions Product Favorable 0.2 Stable 0.7 Unfavorable 0.1 Widget 120,000 70,000 -30,000 Hummer 60,000 40,000 20,000 Nimnot 35,000 30,000 30,000 a. Comput expected value EV(Widget) = 120000*0.2 + 70000*0.7 + -30000*0.1 = 70000 EV(Hummer) = 60000*0.2 + 40000*0.7 + 30000*0.1 = 42000 EV(Nimnot) = 35000*0.2 + 30000*0.7 + 30000*0.1 = 31000 Choose Widget b. Opportunity Loss Table Product Favorable 0.2 Stable 0.7 Unfavorable 0.1 Widget 0 0 60,000 Hummer 60,000
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 30,000 10,000 Nimnot 85,000 40,000 Expected opportunity loss EV(Widget) = 0.1 * 60000 = 6000 EV(Hummer) = 0.2*60000 + 0.7*30000 + 0.1*10000 = 34000 EV(Nimnot) = 85000*0.2 + 0.7*40000 = 45000 c. Determine how much the firm would be willing to pay to gain better information Perfect: 120,000*0.2 + 70000*0.7 + 30000*0.1 = 76000 EV(Widget)= 0.2*120000 +0.7*70000 - 30000*0.1 = 70000 EVPI = 76000 - 70000 = 6000...
View Full Document

This note was uploaded on 09/24/2010 for the course BU 628 taught by Professor Dr.tapp during the Spring '10 term at Georgian.

Ask a homework question - tutors are online