Consider the Texaco – Pennzoil example from Chapter 4.

a. What is EVPI to Hugh Liedtke regarding Texaco’s reaction to a counteroffer of $5 billion? Can you explain this resultintuitively?

b. The timing of information acquisition may make a difference.

(i) For example, suppose that Liedtke could obtain information about the final court decision before making his current decision (take the $2 billion or counteroffer $5 billion). What would be EVPI of this information?

(ii) Suppose that Liedtke knew he would be able to obtain perfect information only after he has made his current decision but before he would have to respond to a potential Texaco counteroffer of $3 billion. What would be EVPI in this case?

c. In part b, EVPI for (ii) should be less than EVPI calculated in (i).Can you explain why? (Incidentally, if your results disagree withthis, you should check your calculations!)