Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Hale's TV Productions is considering producing a pilot for a comedy series in the hope of selling it to a major television network. The network

Hale's TV Productions is considering producing a pilot for a comedy series in the hope of selling it to a major television network. The network may decide to reject the series, but it may also decide to purchase the rights to the series for either one or two years. At this point in time, Hale may either produce the pilot and wait for the network's decision or transfer the rights for the pilot and series to a competitor for $150,000. Hale's decision alternatives and profits (in thousands of dollars) are as follows:

State of Nature

Decision Alternative Reject,S1 1 Year,S2 2 Years,S3

Produce pilot,d1 -100 50 250

Sell to competitor,d2 150 150 150

The probabilities for the states of nature are P(S1) = 0.20, P(S2) = 0.30, and P(S3) = 0.50. For a consulting fee of $10,000, an agency will review the plans for the comedy series and indicate the overall chances of a favorable network reaction to the series. Assume that the agency review will result in a favorable (F) or an unfavorable (U) review and that the following probabilities are relevant:

P(F) = 0.63 P(S1|F) = 0.06 P(S1|U) = 0.45

P(U) = 0.37 P(S2|F) = 0.26 P(S2|U) = 0.35

P(S3|F) = 0.68 P(S3|U) = 0.20

  1. What is the recommended decision if the agency opinion is not used? What is the expected value? Enter your answer in thousands of dollars.
  2. Recommended decision
  3. Expected Value = $thousands.
  4. What is the expected value of perfect information? Enter your answer in thousands of dollars.
  5. EVPI = $thousands.
  6. What is Hale's optimal decision strategy assuming the agency's information is used?
  7. If Favorable
  8. If Unfavorable
  9. What is the expected value of the agency's information? Round your answer to two decimal places. Enter your answer in thousands of dollars.
  10. EVSI = $thousands.
  11. Is the agency's information worth the $10,000 fee? What is the maximum that Hale should be willing to pay for the information?
  12. Decision
  13. Hale should pay no more than $thousands. Round your answer to two decimal places. Enter your answer in thousands of dollars.
  14. What is the recommended decision?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals of Multinational Finance

Authors: Michael H. Moffett, Arthur I. Stonehill, David K. Eiteman

5th edition

205989756, 978-0205989751

More Books

Students also viewed these Finance questions

Question

explain how organizations can promote a positive safety climate.

Answered: 1 week ago