Dollar Department Stores Has Just Acquired the Chain of Wenthrope

question 84

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(I₁ | 80,000) = .1; P(I₁ | 100,000) = .2; P(I₁ | 120,000) = .6; P(I₁ | 140,000) = .3. Should Dollar purchase the forecast?

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