Dollar Department Stores Has Just Acquired the Chain of Wenthrope

question 9

Essay

Dollar Department Stores has just acquired the chain of Wenthrope and Sons Custom Jewelers.Dollar has received an offer from Harris Diamonds to purchase the Wenthrope store on Grove Street for $120,000.Dollar has determined probability estimates of the store's future profitability,based on economic outcomes,as: P($80,000)= .2,P($100,000)= .3,P($120,000)= .1,and P($140,000)= .4.
a.Should Dollar sell the store on Grove Street?
b.What is the EVPI?
c.Dollar can have an economic forecast performed,costing $10,000,that produces indicators I₁ and I₂,for which P(I_{1SYMBOL 189 \f "Symbol"}80,000)= .1;P(I_{1SYMBOL 189 \f "Symbol"}100,000)= .2;P(I_{1SYMBOL 189 \f "Symbol"}120,000)= .6;P(I_{1SYMBOL 189 \f "Symbol"}140,000)= .3.Should Dollar purchase the forecast?

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Definitions:

Standard Error

A measure of the precision of a sample's mean estimate of a population mean.

Random Samples

A subset of individuals chosen from a larger population where each individual has an equal chance of being selected.

Populations

The entire group of individuals or items of interest from which samples may be drawn for statistical analysis.

Mean

The mean value of a group of numbers, found by dividing the aggregate of the numbers by how many numbers there are.