$2)(5$ points$)$ What is the expected value of perfect information $($EVPI$)$ to Hugh Liedtke regarding Texaco's

reaction to a counteroffer of $$5$ billion? Can you explain this result intuitively? $($Hint: No need to resolve the

uncertainty in final court decisions when analyzing EVPI of Texaco$$s reactions$)$

$3)(5$ points$)$ Conduct a one$-$way sensitivity analysis on the following two parameters: $(1)$ the amount that

Texaco counteroffers $($with the baseline value of $$3$ billion$)$ and $(2)$ the amount that the court may award with

$50\%$ chance $($with the baseline value of $$5$ billion$).$ Assume the range of these parameters to be $\backslash$pm $50\%$ of their

baseline value. Describe the steps of your sensitivity analysis and present the tornado diagram. Discuss your

findings.

a$.($Bonus $3$ points$)$ Suppose that Liedtke is unsure about the probabilities associated with the final court

outcome. Let p $=$ P$(10\mathrm{.}3)$ and q $=$ P$(5)$ so that $1-$p$-$q $=$ P$(0).$ Create a two$-$way sensitivity graph that

shows optimal strategies for Liedtke for possible values of p and q $($Hint: What is the constraint on p

$+$ q$?).$ If Liedtke thinks that p must be at least $0\mathrm{.}15$ and q must be more than $0\mathrm{.}35,$ can he make a

decision without further probability assessment?