Question
4. Fard's Department Store has just acquired the chain of Cook Custom Jewelers. Fard's has received an offer from Bulldog Diamonds to purchase the Cook
4.
Fard's Department Store has just acquired the chain of Cook Custom Jewelers. Fard's has received an offer from Bulldog Diamonds to purchase the Cook jewelry store in Seguin for $120,000. Fard's has determined probability estimates of the store's future profitability, based on economic outcomes, as shown at the bottom of the payoff table.
Store Profitability ($000's)
Poor
(s1)
Mediocre
(s2)
Good
(s3)
Excellent
(s4)
Keep (d1)
80
100
120
140
Sell (d2)
120
120
120
120
Probability
0.2
0.3
0.1
0.4
ussing expected values, should Kohl's sell the store in Seguin?
What is the EVPI?
Dollar can have an economic forecast performed that produces indicators I1 and I2, for which:
P(I1| s1) = 0.1; P(I1|s2) = 0.2; P(I1|s3) = 0.6; P(I1|s4) = 0.3.
If Fard's pays for the economic forecast and receives indicator I1, should they sell the store?
If Fard's pays for the economic forecast and receives indicator I2, should they sell the store?
If the economic forecast costs $10,000, should Fard purchase the forecast?
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