Find answers to your most challenging questions with the help of IDNLearn.com's experts. Join our community to receive prompt, thorough responses from knowledgeable experts.

A firm must decide whether to construct a small, medium, or large stamping plant. A consultantâs report indicates a 0.20 probability that demand will be low and an 0.80 probability that demand will be high. If the firm builds a small facility and demand turns out to be low, the net present value will be $42 million. If demand turns out to be high, the firm can either subcontract and realize the net present value of $42 million or expand greatly for a net present value of $48 million. The firm could build a medium-size facility as a hedge: If demand turns out to be low, its net present value is estimated at $22 million; if demand turns out to be high, the firm could do nothing and realize a net present value of $46 million, or it could expand and realize a net present value of $50 million. If the firm builds a large facility and demand is low, the net present value will be - $20 million, whereas high demand will result in a net present value of $72 million. (a). Analyze this problem using a decision tree. (b). What is the maximin alternative? (c). Compute the EVPI and interpret it.

Sagot :

A . The figure below gives the decision tree for the given problem: Low demand ( 0-20 ) -S42 Million Subcontract High demand.

B. The payoff table for the decision tree obtained in part a . is shown below: Alternative Low High Small facility $ 42 $ 48 Med

C. The Expected value of perfect information can be computed by using the formula given below: EVPI = Expected payoff under  Expected payoff under risk can be calculated as shown below: The payoff table is shown below: Alternative Low High Small face.

The expected value of complete information is the price a healthcare decision-maker is willing to pay to obtain complete information on all factors that influence which treatment option is preferred as a result of a cost-benefit analysis. . The expected value of complete information is the price we are willing to pay for access to complete information.

Learn more about The Expected value here:- https://brainly.com/question/28197299

#SPJ4