Explain how much should the airport authority

Reference no: EM1316240

Expected value of perfect information

ING\'s Consulting Solution division has been approached by the North Carolina Regional Airport Authority about a difficult problem with overcrowding at the Charlotte airport there are three different options under consideration:

1. The airport could be totally redesigned and rebuilt at a cost of $8.2M. The present value of increased revenue from a new airport is in question. There is a 70% probability that this present value would be $11.0M, a 20% probability the present value would be $5.0M, and a 10% probability that the present value would be $1 0M depending on whether the new airport is a success, a moderate success, or a failure.

2. The airport could be remodeled with a new runway for a cost of $4.7M. The present value of the increased revenue would be $6 0M (with a probability of 0.8) or $3.0M (with a probability of 0.2).

3. They could do nothing with the airport and suffer a loss of revenue of either $1 .OM (65% chance) or $4.0M (35% chance).

A. How much should the airport authority be willing to pay for perfect information about the success of a brand new airport?

B. How much should ING charge for a detailed report on the success of a remodeled airport?

Reference no: EM1316240

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