Suzan just finished a new movie script. Paramount offers to buy the script for (a) $1,100,000 or (b) 4% of the movie's profits. There are three decisions the studio will have to make. The first is to decide if the script is good or bad, the second is if the movie is good or bad, and the third is advertising. There is only a 40% the script is terrible. If the script is bad, the studio does nothing and earns nothing. If the script is good, the studio will shoot the movie. After the movie is shot, the studio will review it, and a 75% chance the movie is good. If the movie is terrible, it will go directly to the company's streaming service and earn $4 million. If the movie is really good, there is a 20% chance the company will advertise heavily and earn $500 million. If the movie is good, there is an 80% chance the company will do minimal advertising and earn a net present value of $15 million. Based on your analysis, Suzan should: cannot be determined choose option a choose option b she is indifferent between option a and option b
Suzan just finished a new movie script. Paramount offers to buy the script for (a) $1,100,000 or (b) 4% of the movie's profits. There are three decisions the studio will have to make. The first is to decide if the script is good or bad, the second is if the movie is good or bad, and the third is advertising. There is only a 40% the script is terrible. If the script is bad, the studio does nothing and earns nothing. If the script is good, the studio will shoot the movie. After the movie is shot, the studio will review it, and a 75% chance the movie is good. If the movie is terrible, it will go directly to the company's streaming service and earn $4 million. If the movie is really good, there is a 20% chance the company will advertise heavily and earn $500 million. If the movie is good, there is an 80% chance the company will do minimal advertising and earn a
Based on your analysis, Suzan should:
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cannot be determined |
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choose option a |
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choose option b |
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she is indifferent between option a and option b |
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