Question 1 Given the following payoff table with the profits ($m), a firm might expect alternative investments (A, B, C) under different levels of interest rate. payoffs as profits states of nature decision alternatives 1(5%) 2(7%) 3(9%) A 14 22 6 B 19 18 11 C 12 17 15 a. Use the alternative method to verify EVPI NOW ASSUME THAT THE PAYOFFS ARE COSTS ANSWER THE FOLLOWING: b. What is the most the firm should be willing to pay to obtain further (perfect) information (EVPI)? c. Use the alternative method to verify EVPI. Please answer all three parts of Question 1.
Question 1 Given the following payoff table with the profits ($m), a firm might expect alternative investments (A, B, C) under different levels of interest rate. payoffs as profits states of nature decision alternatives 1(5%) 2(7%) 3(9%) A 14 22 6 B 19 18 11 C 12 17 15 a. Use the alternative method to verify EVPI NOW ASSUME THAT THE PAYOFFS ARE COSTS ANSWER THE FOLLOWING: b. What is the most the firm should be willing to pay to obtain further (perfect) information (EVPI)? c. Use the alternative method to verify EVPI. Please answer all three parts of Question 1.
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter7: Nonlinear Optimization Models
Section: Chapter Questions
Problem 56P
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Question 1
Given the following payoff table with the profits ($m), a firm might expect alternative investments (A, B, C) under different levels of interest rate.
payoffs as profits |
states of nature |
|
|
decision alternatives |
1(5%) |
2(7%) |
3(9%) |
A |
14 |
22 |
6 |
B |
19 |
18 |
11 |
C |
12 |
17 |
15 |
a. Use the alternative method to verify EVPI
NOW ASSUME THAT THE PAYOFFS ARE COSTS ANSWER THE FOLLOWING:
b. What is the most the firm should be willing to pay to obtain further (perfect) information (EVPI)?
c. Use the alternative method to verify EVPI.
Please answer all three parts of Question 1.
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