Determing the Value of Additional Information}

Assume the probability that a process is in control is \(80 \%\). The cost of investigation is \(\$ 100\). The cost of correction is \(\$ 500\). The present value of cost savings over the planning period is \(\$ 1,200\).

{Required:}

Determine the maximum amount that a firm would pay for additional information concerning the true state of the process.