Purchase Solution

# Decision making with probabilities

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Dollar Department Stores has received an offer from Harris Diamonds to purchase Dollar's 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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Dollar Department Stores has received an offer from Harris Diamonds to purchase Dollar's 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?

Future Profitability States Probability Prob* Future ...

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