What is the expected value of perfect information

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Karen Villagomez, president of Wright Industries, is considering whether to build a manufacturing plant in the Ozarks. Her decision is summarized in the following table:

Alternatives

Favorable Market

Unfavorable Market

Build large plant

$400,000

-$300,000

Build small plant

$80,000

$10,000

Don't build

$0

$0

market probabilities

0.4

0.6

1. Construct a decision tree.

2. Determine the best strategy using expected monetary value (EMV).

3. What is the expected value of perfect information (EVPI)?

Reference no: EM131844209

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