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sir,
B. Calculate the maximum price that GB should pay for perfect information about the expansion’s exact effect on MEMBERS NUMBER
My Answer ,
EV with perfect information $(10.413- 10.08) = $ 0.333m
(can you please tell me where did I do the mistake, In ACCA answer this has been calculate differently. it has calculated (0.4x 10.08) why do we 0.4 x option 1 expected value. please help).
10.413 and 10.08 are the expected values of each if we do not know what the membership numbers are going to be.
The point of paying for perfect information is that we will know in advance what the membership numbers will be, before we make our decision. The only problem is that we do not know which answer they will give,If we pay for the information and they tell us that the numbers are 6,000 then we know that we will choose option 1 (and get 10.08) whereas if they tell us that the numbers are 6500 then we know that we will choose option 2 (and get 10.755).
Since we know the probabilities of these, we know the probabilities of them giving us each of those answers, and show e can calculate the expected value if we do pay for the information.
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