Intermediate. A clothing retailer is considering which of three mutually exclusive advertising packages to use when it launches its new range of autumn fashion. The sales revenue from the range will depend on customer reaction to the chosen advertising package. There is a 25 per cent chance that customer reaction will be good; a 40 per cent chance that customer reaction will be moderate and a 35 per cent chance that customer reaction will be poor.

The contribution, net of advertising costs, for each of the possible outcomes is as follows:

A market research company believes it can provide perfect information on potential customer reaction to the range.
Required:
Calculate, on the basis of expected value, the maximum amount that should be paid for the information from the market research company. (5 marks)
CIMA P1 Performance Operations

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Customer reaction Package A $000s Package B Package C $000s $000s Good 700 900 800 Moderate Poor 600 500 400 400 300 500