CMA Intermediate · Management Accounting · Decision Theory
A firm has payoffs (Rs. 000) for actions X: 100 (Boom, p=0.4), 40 (Normal, p=0.4), -20 (Slump, p=0.2); Y: 70, 60, 20. Compute EVPI.
EMV of X is 52 and Y is 56 (thousand). EPPI uses best payoffs 100, 60, 20, giving 68. EVPI is 68 minus 56 = Rs. 12,000 (thousand-rupee units in data).
- ARs. 12,000
- BRs. 8,000Correct
- CRs. 4,000
- DRs. 16,000
Explanation
EMV X = 40+16-4 = 52; EMV Y = 28+24+4 = 56. Best = 56. EPPI: best per state 100, 60, 20 = 40+24+4 = 68. EVPI = 68-56 = 12 (thousand). So Rs. 12,000 is correct.
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