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John, Is it not told in the example that Cordi will only consider doing the cheap refurbishment if the market research is told Poor. Then why are we considering the Shut down as an option in the decision tree. Pls explain. Thanks in advance.
John Moffat says
It says they will consider the cheap refurbishment, but only ‘consider’ – therefore they may decide not to do it and therefore shut down. (What they won’t consider doing is the expensive refurbishment 🙂 )
So, The ‘Value of Imperfect Information is $7.43’ ?
No. The value of the information is the different between the value with the information (7.43M) and the value if we did not have the information. Without the market research we would choose the expensive refurbishment and get 11.17 – 4 = 7.17.
So the value of the information is 7.43 – 7.17 = 0.26M
I would like to thank you for your videos and for making us understand in an easy way all the ACCA topics.
Thank you for your comment 🙂
why didn’t you account for B ?
I did!! Listen again to the lecture – I do account for it 🙂
Thank you for the Lecture.
I have a doubt, in the final answer we summarized that shut down will give 5m, Expensive refurbishment will give 7.17m which is after reducing 4m and market research will give 7.43m which is only after reducing 0.2m but in actual scenario if we again reduce from market research 4m or 2m it will be much less than expensive refurbishment i.e 7.17 so 7.17 is high. Please help to clear my doubt.
It is not what you pay that matters, but what the net return is.
Decision tree you have just discussed about imperfect decision, would you please give any example about perfect and imperfect decision so that i can understand clearly
There is not such thing as perfect and imperfect decisions – what you mean is perfect and imperfect knowledge.
It is finding out in advance what the outcome will be (such as paying for market research to find out what the sales will be). If the research is 100% accurate, then this is perfect knowledge. In real life no survey is 100% accurate and if it is not 100% accurate then this is imperfect knowledge.
Thanks for a very good lecture! I am taking the exam in CBE format for F5. So, should I be expecting the examiner to test my skill in drawing the decision tree and then performing the calculations for expected values? Or would it be given as reference and then I would have to decipher it? If I have to solve problem without a decision tree, is there any easier method I can look to follow, or is it better if I draw it out in the rough sheet provided for calculations by ACCA?
You can no longer be asked to draw a decision tree in the exam. However it is possible that you could be given a decision tree and asked to perform the relevant calculations.
Hi John. At point C when checking result between shut down or do expensive or do cheap or market research you havent subtract 0.2m from market research result? Should we ignore market research cost? Of course the cost doesnt affect the decision as 7.63-0.2 still bigger then 7.17 but for studying purpose I would like to know.
But I do subtract 0.2 when making the decision and get 7.43.
Sorry, I missed that – my video didnt play properly till the end, apologies over that. Thank you.
You are welcome 🙂
There is a short online Practice Test for most of the chapters. You can find the link to them on the main F5 page: http://opentuition.com/acca/f5/
Hello Amazing lectures.Clear as water!!Thanks
At the end of every lecture you get a message in a yellow box saying: “When you finished this chapter you should attempt the online F5 MCQ Test” I cannot seem to find the “online F5 MCQ Test”. Does that refers to the mock exam or is there actually an MCQ bank somewhere? Thanks
Thank you for the comment.
You can find the practice questions linked from the main F5 page: http://opentuition.com/acca/f5/
(Scroll down the page a bit 🙂 )
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