MA91 Problem: Payoff Tables (Expected Values) & EVPI - Etam Repap Inc.

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MA91 Problem: Payoff Tables (Expected Values) & EVPI - Etam Repap Inc.

 

Etam Repap Inc. is considering rearranging its plant to increase efficiency. If the rearrangementis completely successful, anticipated operating costs will be $200,000 per annum. If therearrangement is partially successful, anticipated operating costs are expected to be $310,000. If unsuccessful, operating costs are anticipated to be $510,000. The probability of complete successis 50%, partial success 30% and failure is 20%. If the company does not rearrange, operatingcosts will be $400,000.Required:1. Prepare a payoff table (alternatives are rearrange or do not rearrange).2. Restate requirement 1 in a decision tree format.3. Etam Repap Inc. has an opportunity to hire a consultant who could predict the successrate with certainty. How much should Etam be willing to pay for such a report

    • 9 years ago
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