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PS 20 - Value of Perfect Information

# PS 20 - Value of Perfect Information - the sales of their...

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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  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

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Unformatted text preview: 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. Trend / Chance of Happening Trend A 15% Trend B 65% Trend C 20% EV Game 30 390 180 600 Business 120 227.5 170 62.5 Education 60 260 230 550 IE 150 Problem Set 20 Expected Value of Perfect Information EV w/ PI: 800(0.15) + 500 (0.65) + 1150 (0.20) = 740 Value of PI : 740 – 600 = 140. You should not pay....
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• Spring '11
• J3Patino
• Harshad number, App Store, Dice, Expected value of perfect information, iPhone applications, Business Education Trend

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