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Sorry I couldn’t answer in the previous thread because of some technical problem so I had to make another thread to ask you this!
[Question]
Demand Level——Strong—-Moderate—-Weak
Project 1————-70000——10000——(7000)
Project 2————-25000——12000——-5000
Project 3————-50000——20000——(6000)
Probability————-0.1———-0.4———-0.5[Answer]
EV with Perfect information = (70000 x 0.1) + (20000 x 0.4) – (5000 x 0.5) = 17500
EV with no information =————————— = 10000
Value of Perfect information =———————-= 7500Value of Perfect information can also be calculated:
(70000 x 0.1) + (10000 x 0.4) – (7000 x 0.5) = 7500EV calculation:
Project 1 : (70000 x 0.1) + (10000 x 0.4) – (7000 x 0.5) = 7500
Project 2 : (25000 x 0.1) + (12000 x 0.4) + (5000 x 0.5) = 9800
Project 3 : (50000 x 0.1) + (20000 x 0.4) – (6000 x 0.5) = 10000 (chosen)[The decision would be to select Project 3 and the EV of profit would be $10,000]
You have not said what you are asking!
If you are asking me to check it, then the EV with perfect information should have as the last term ” +(5000 x 0.5)” and not ” – (5,000 x 0.5)” although the 17,500 is correct and therefore the value of perfect information is correct at 7,500.
Your other way of calculating it is not valid and makes no senses. It happens to be the same here but that is just a coincidence.
You have not said what you are asking!
If you are asking me to check it, then the EV with perfect information should have as the last term ” +(5000 x 0.5)” and not ” – (5,000 x 0.5)” although the 17,500 is correct and therefore the value of perfect information is correct at 7,500.
Your other way of calculating it is not valid and makes no senses. It happens to be the same here but that is just a coincidence.
Thanks for your previous answer 🙂 could u please also tell me about imperfect information calculation below. It would be great. I Sorry in advance for such a long question!
[Question]
Demand level———–Strong——–Weak
Option A——————60000——–50000
Option B—————–100000——-20000
Demand Probability—–0.4————0.6
Research Probability—-0.9————0.8[Answer]
Demand—Research—-Decision——-Profit——-Probability——-EV
–Weak——Weak——–Option A——$50000—–(0.6 x 0.8)——24000
–Weak——Strong——-Option B——$20000—–(0.6 x 0.2)——2400
–Strong—–Strong——-Option B——$100000—(0.4 x 0.9)—–36000
–Strong—–Weak——–Option A——$60000—–(0.4 x 0.1)——2400
EV with imperfect information——————————————-64800EV calculation:
Option A : ($50,000 x 0.6) + ($60,000 x 0.4) = $54,000
Option B : ($20,000 x 0.6) + ($100,000 x 0.4) = $52,000[The decision would be to select Option A and the EV of profit would be $54,000]
EV with imperfect information = (70000 x 0.1) + (20000 x 0.4) – (5000 x 0.5) = 64800
EV with no information———- = 54000
Value of Imperfect information = 10800We will always be given two probabilities in imperfect information questions to calculate the sum of probabilities. (if correct then why is that?)
Is that all correct?
It seems OK.
If it is imperfect knowledge then we kneed to know the probability of the information being correct and the probability of it not being correct.
Calculations on imperfect knowledge are extremely unlikely in the exam. I assume that you have a Revision Kit from one of the ACCA Approved Publishers, in which case the examples in there are all that you can expect in the exam.
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