Question
What will be the EVPI (by first finding the EV with PI) and the solution to the problem using decision tree? The problem is as
What will be the EVPI (by first finding the EV with PI) and the solution to the problem using decision tree?
The problem is as follows -->
A ski resort has always relied on natural snow, which could come in any one of four levels: heavy, medium, light, or none, with probabilities 0.1, 0.4, 0.3, and 0.2 respectively. They are now, in July, considering the installation of an artificial snow-making system before the upcoming season. If installed, the annual amortized cost would be $40,000. The operating costs of the snow system would be $0 if the natural snow were heavy, $50,000 if medium, $80,000 if light, and $110,000 if there were no natural snow. With an artificial snow system, or with heavy natural snow, they would obtain revenue of $200,000. With no artificial snow, the revenue would be only $130,000 with medium snow, $70,000 with little snow, and $0 if there were no snow. Operating costs other than snow-making would be $45,000 per year (whether artificial or natural snow). Choosing, before the season begins, to close the operation completely for the upcoming season, would allow them to rent the land with a rental income of $20,000.
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