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What is the EVPI? Success Moderate Success Failure Probability 0.3 0.3 0.4 Sell Company 80 80 80 Form Joint Venture 210 120 90 Sell Software on own 420 106 -100

What is the EVPI? Success Moderate Success Failure Probability 0.3 0.3 0.4 Sell Company 80 80 80 Form Joint Venture 210 120 90 Sell Software on own 420 106 -100

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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### Expected Value of Perfect Information (EVPI) This table provides data for calculating the Expected Value of Perfect Information (EVPI) based on different business outcomes: Success, Moderate Success, and Failure. The table is structured to show the probabilities and profits associated with three strategic options: Sell Company, Form Joint Venture, and Sell Software on Own. #### Table Overview: - **Columns:** - **Success** - **Moderate Success** - **Failure** - **Rows:** - **Probability:** - Success: 0.3 - Moderate Success: 0.3 - Failure: 0.4 - **Profit Outcomes (based on strategic choices):** - **Sell Company:** - Success: 80 - Moderate Success: 80 - Failure: 80 - **Form Joint Venture:** - Success: 210 - Moderate Success: 120 - Failure: 90 - **Sell Software on Own:** - Success: 420 - Moderate Success: 106 - Failure: -100 To calculate the EVPI, consider the expected monetary value (EMV) under different scenarios without perfect information and compare it with the expected outcomes with perfect information. This requires assessing the best decision based on each probability-weighted outcome and determining the additional benefit of having perfect information.
Transcribed Image Text:### Expected Value of Perfect Information (EVPI) This table provides data for calculating the Expected Value of Perfect Information (EVPI) based on different business outcomes: Success, Moderate Success, and Failure. The table is structured to show the probabilities and profits associated with three strategic options: Sell Company, Form Joint Venture, and Sell Software on Own. #### Table Overview: - **Columns:** - **Success** - **Moderate Success** - **Failure** - **Rows:** - **Probability:** - Success: 0.3 - Moderate Success: 0.3 - Failure: 0.4 - **Profit Outcomes (based on strategic choices):** - **Sell Company:** - Success: 80 - Moderate Success: 80 - Failure: 80 - **Form Joint Venture:** - Success: 210 - Moderate Success: 120 - Failure: 90 - **Sell Software on Own:** - Success: 420 - Moderate Success: 106 - Failure: -100 To calculate the EVPI, consider the expected monetary value (EMV) under different scenarios without perfect information and compare it with the expected outcomes with perfect information. This requires assessing the best decision based on each probability-weighted outcome and determining the additional benefit of having perfect information.
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