Downloadable - About University

468 Suggested answers to selected questions
(3) p(machine accidentally overfilled) = 0.2963.
(4) p(minerals in commercial quantities) = 0.8182.
(5) (a) (i) Build new plant (expected NPV = $450 000); (ii) EVPI =
$85 000.
(b) The company should now expand existing plant (expected
NPV = $390 750).
(6) (a) (i) Plan for medium sales (expected profit = $164 000);
(ii) EVPI = $64 000.
(b) The company should still plan for medium sales (expected
profit = $152 190).
(7) Expected value of test = $399 (subject to rounding).
(8) (a) (i) The product should be launched (expected NPV = $18 million);
(ii) EVPI = $12 million.
(b) EVIl = $5.11 million therefore it is worth test marketing the
product.
(9) Decision rule: if the light illuminates stop production immediately,
i.e. do not take a sample from output (EVII = $150 000 − $150 000 =
$0).
(10) (a) (i) The expected value of the imperfect information (EVII) from
the forecast is: $6000 − $5505 = $495.
(ii) Central should not buy the forecast since its cost ($1500)
exceeds the EVII, but they should request the customer to
reduce electricity consumption.
(11) (a) The expected value of the imperfect information (EVII) from the
test is:
$30 000 − $24 040 = $5960.
(c) The expected value of perfect information (EVPI) from the test
is $29 400.
(12) (a) The expected value of the imperfect information (EVII) from
the geological survey is: $50m − $47.503 = $2.50m (subject to
rounding).
(b) If the survey was perfectly reliable, its expected value would be
$6 million.
Chapter 13
(9) The chart shows that the deal with a value to the council of 45.65 is
efficient in that it would offer gains over the tentative deal to both
parties. The table shows that this deal is: