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PS 20 - Value of Perfect Information

PS 20 - Value of Perfect Information - to make They could...

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IE 150 Problem Set 20 Expected Value of Perfect Information Instructions:  Write/Type/Print your answers on yellow pad or bond paper (NO A4’s). Use a different sheet per  problem.  Use phrases  to describe what you are doing. Do not present it as just a series of equations and  numbers.  Label each step. Ex: “Step 1: Set-up the Total Revenue Equation”, “Step 4: Solve for the NPV”.  Box the final answers.  Use clear formatting: Indent at each step. Show your answers in just 1 column. (The problem set  will be read from top to bottom, and not top bottom diagonal right bottom.) Problem 1:  Louie and Neil are developing iPhone Applications. They are currently deciding what type of application 
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Unformatted text preview: to make. They could either make a game, an app for business, or an app for education. They do not know which app category would boom in the next 6 months… There are three possible trends that could affect the sales of their app Trend / Chance of Happening Trend A 15% Trend B 65% Trend C 20% Game $200 $600 $900 Business $800-$350 $850 Education $400 $400 $1,150 They have the option to pay Apple $500 in order to gain access to the past sales data of iPhone Applications. Having this information would let them predict with 100% certainty which trend will likely occur. Should they purchase the access to this data? Why? Show the tables for computing the EVPI....
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