Your independent film production company owns the rights to a script for a rom-com movie. They...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Your independent film production company owns the rights to a script for a rom-com movie. They estimate that the script would cost $30 million to make into a movie, which would have a 35% chance of being a hit. If the resulting movie becomes a hit, it would earn $50 million in revenue, and otherwise (if it is a "flop"), it would earn only $15 million in revenue. The company is considering hiring a script consultant to give her opinion of the script, but her services are expensive: she would charge $ 0.5 million to review the script. She will render an opinion of either "favorable" or "unfavorable". The company's experience is that the consultant rates rom-com scripts "favorable" 50% of the time, and scripts that she rates as "favorable" have a 60% probability of being hits. Scripts she rates as "unfavorable" have only a 10% chance of being hits. According to the EMV criterion, what should the production company do? Make the script into a film? Abandon the project? Or hire the script consultant and then decide? (If the company abandons the project, it will have no further revenue or costs.) In addition to finding the optimal policy and EMV for this problem, calculate the EVSI of hiring the script consultant. Also, calculate the EVPI in this situation. Show your work in arriving at each number. Your independent film production company owns the rights to a script for a rom-com movie. They estimate that the script would cost $30 million to make into a movie, which would have a 35% chance of being a hit. If the resulting movie becomes a hit, it would earn $50 million in revenue, and otherwise (if it is a "flop"), it would earn only $15 million in revenue. The company is considering hiring a script consultant to give her opinion of the script, but her services are expensive: she would charge $ 0.5 million to review the script. She will render an opinion of either "favorable" or "unfavorable". The company's experience is that the consultant rates rom-com scripts "favorable" 50% of the time, and scripts that she rates as "favorable" have a 60% probability of being hits. Scripts she rates as "unfavorable" have only a 10% chance of being hits. According to the EMV criterion, what should the production company do? Make the script into a film? Abandon the project? Or hire the script consultant and then decide? (If the company abandons the project, it will have no further revenue or costs.) In addition to finding the optimal policy and EMV for this problem, calculate the EVSI of hiring the script consultant. Also, calculate the EVPI in this situation. Show your work in arriving at each number.
Expert Answer:
Related Book For
Making Hard Decisions with decision tools
ISBN: 978-0538797573
3rd edition
Authors: Robert Clemen, Terence Reilly
Posted Date:
Students also viewed these general management questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Solve the triangles with the given parts. a = 7.86, b = 2.45, C = 2.5
-
Block Department Stores' chief executive officer (CEO) has asked you to compare the company's profit performance and financial position with the average for the industry. The CEO has given you the...
-
Twenty-five people, including yourself, are to measure the length of a room to the nearest tenth of a millimeter. Assume that everyone uses the same well-calibrated measuring device, such as a tape...
-
The four alternatives described below are being evaluated: The Incremental IRRs are: a. If the alternatives are independent, which one(s) should be selected if \(M A R R=15.5\) percent/year? b. If...
-
Sunspot Beverages, Ltd., of Fiji makes blended tropical fruit drinks in two stages. Fruit juices arc extracted from fresh fruits and then blended in the Blending Department. The blended juices are...
-
A 250 kg beam is raised through 25 m at a constant velocity by a crane. a) Draw an FBD for the beam. b) Determine the work done by the crane on the beam. c) Determine the work done by gravity on the...
-
During 2019, Jason and Vicki Hurting, who are married with two children and filing jointly, had the following tax information. Jason owns a cash-basis landscaping business, and Vicki works as a sales...
-
Tic-tac-toe is a game played between two players on a 33 grid. In a turn, a player chooses an empty cell and places their symbol on the cell. The players take alternating turns, where the player with...
-
The Speedy Oil Change Company advertised a 15-minute wait for anoil change. A sample of 23 oil changes showed a mean time of 13.5minutes and a standard deviation of 4.3 minutes. At the 5% level...
-
1. If Maria continues charging $150 per month on her card, what would her monthly payment need to be in order to pay off her debt in 24 months? Use the Credit Card payoff Calculator.
-
2. Given the following Macro Model Y = C + I + G 0 C = a + b Y I = k + m Y (i) Solve the system for its endogenous variables by the substitution method ( Y , C , I ) and specify the government...
-
Discuss in the detail the Balance Sheet. What is shown on the Balance Sheet? Why is the Balance Sheet important to a hospitality firm?
-
Examine the balance sheet of commercial banks in the following table. $ Billion % Total Assets Real assets Liabilities Equipment and premises $ 173.7 1.1% Deposits Other real estate 38.9 0.3 Total...
-
Frames are produced in 3 different machines in a factory. 30% of frames are produced in the C1 machine and 50% of frames in the C2 machine. Due to workmanship defects, C1, C2 machine 5% and C3...
-
How is use of the word consistent helpful in fraud reports?
-
Assess the probability that you will be hospitalized for more than one day during the upcoming year. In assessing this probability, decompose the assessment based on whether or not you are in an auto...
-
Let us return to the Texaco-Pennzoil example from Chapter 4 and think about Liedtkes risk attitude. Suppose that Liedtkes utility function is given by the utility function in Table 14.5. a. Graph...
-
A stock market investor has $500 to spend and is considering purchasing an option contract on 1,000 shares of Apricot Computer. The shares themselves are currently selling for $28.50 per share....
-
Parents with a child in subsidized childcare in the province of Qubec, Canada, pay a basic amount and, depending on family income, may pay an additional amount. As of January 1, 2017, families with a...
-
A firm in the state of Karnataka in India can source one of its factors of production either within the state, \(F_{K}\), or from the neighboring state of Maharashtra, \(F_{M}\). Assume the quality...
-
A firm has the cost curve \(C(q)=25+q^{2}\). Show how the firm's average cost varies with output. Is there a minimum average cost and, if so, at what level of output is average cost minimized?
Study smarter with the SolutionInn App