Fairco, a family business is considering making an investment in its manufacturing operation. Three decisions are...
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Fairco, a family business is considering making an investment in its manufacturing operation. Three decisions are under consideration: (1) a large investment; (2) a medium investment; and (3) a small investment. The business believes that there are three possible future outcomes for its product: (1) increasing demand; (2) stable demand; and (3) decreasing demand. The business believes that the probability for increasing, stable and decreasing product demand are 0.4, 0.5, and 0.1, respectively. The following payoff table describes the decision situation. States of Nature Increasing Demand (0.4) Decreasing Demand (0.1) Decision Stable Demand (0.5) Large Investment Medium Investment Small Investment $1,000,000 $400,000 -$600,000 $500,000 $300,000 -$200,000 $250,000 $125,000 $25,000 The expected value of perfect information for Fairco is A. $25,000. B. $540,000. C. $602,500. D. $62,500. Fairco, a family business is considering making an investment in its manufacturing operation. Three decisions are under consideration: (1) a large investment; (2) a medium investment; and (3) a small investment. The business believes that there are three possible future outcomes for its product: (1) increasing demand; (2) stable demand; and (3) decreasing demand. The business believes that the probability for increasing, stable and decreasing product demand are 0.4, 0.5, and 0.1, respectively. The following payoff table describes the decision situation. States of Nature Increasing Demand (0.4) Decreasing Demand (0.1) Decision Stable Demand (0.5) Large Investment Medium Investment Small Investment $1,000,000 $400,000 -$600,000 $500,000 $300,000 -$200,000 $250,000 $125,000 $25,000 The expected value of perfect information for Fairco is A. $25,000. B. $540,000. C. $602,500. D. $62,500.
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Answer rating: 100% (QA)
Answer Option D 62500 Explanation Expected payoff Large investment 04 1000000 05400... View the full answer
Related Book For
Engineering Economy
ISBN: 978-0133439274
16th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Posted Date:
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