Howard Weiss, Inc., is considering building a sensiive new radiation scanning de

Question

Howard Weiss, Inc., is considering building a sensiive new radiation scanning device. His managers believe that there is a probability of 0.45 that the ATR Co. will come out with a competitive product. If Weiss adds an assembly line for the product and ATR Co. does not follow with a competitive product les 's expected profit is S40.00 if weiss adds an assembly line and ATR flows surt, Weiss still expects $15.000 profi Weiss adds a ne glant addition and ATR does not produce a competive product, Weiss expects a profit of $600,000, if ATR does compete for this market Weiss expects a loss cf $80,000 a) Expected value for the Add Assembly Line option-s (enter your answer as a whole number). Expected value for the Build New Plant option (enter your answer as a whole number). The alternative that provides Weiss the greatest expected monetary value (EMV) is The value of the return under this decision is s (enter your answer as a whole number) b) The expected value of perfect information (EVPI) for Weiss $ (enter your answer as a whole numbe) Enter your answer in each of the answer boxes.

Explanation / Answer

a) Expected Value of Add assembly line = 40000*(1-.45) + 15000*.45 = $ 28,750

Expected Value of New Plant addition = 600000*(1-.45) + (-80000)*.45 = $ 294,000

Alternative that provides greatest EMV is New Plant addition

Value of the return under this decision is $ 294,000

b) Expected Value with Perfect Information (EVwPI) = 600000*(1-.45) + 15000*.45 = $ 336,750

EVPI = EVwPI - EMVmax = 336750 - 294000 = 42750

EVPI = $ 42,750

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