A Payoff Table Is Shown Below The Following Prior Probabilities Are Assigned to the States of }\\\text

question 21

Essay

A payoff table is shown below. $\begin{array}{ll}\text { Alternative }\\\text { State of Nature }&\quad a_1\quad\quad a_2\quad\quad a_3\\\begin{array}{ll}s_1\\s_2\\s_3\end{array}&\begin{array}{|lll|}\hline 21\quad&8\quad&-3\quad \\12&12&7\\-15&9&13\\\hline\end{array}\end{array}$
The following prior probabilities are assigned to the states of nature:
P( $s _ { 1 }$ ) = 0.2, P( $S _ { 2 }$ ) = 0.7, P( $S _ { 3 }$ ) = 0.1.
a. Determine the EMV decision.
b. Set up the opportunity loss table.
c. Determine the EOL decision.
d. What is the expected payoff with perfect information?
e. What is the expected value of perfect information?

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Definitions:

Resale Value

The estimated market value of an asset at the end of its useful life or lease term.

Depreciation Tax Shield

The reduction in income tax expense that results from the depreciation expense on capital assets, allowing companies to save money on taxes.

Marginal Tax Rates

The rate of tax applied to the last dollar of income, which can vary depending on the income level and filing status of an individual or entity.

Straight-Line

A method of calculating depreciation of an asset, where its cost is evenly spread over its useful life.