CMA Intermediate · Management Accounting · Decision Theory
Meera Textiles is choosing among three actions under three demand states with probabilities: High 0.3, Medium 0.5, Low 0.2. Payoffs (Rs. lakh): Action A: 60, 40, 10; Action B: 50, 45, 30; Action C: 80, 30, 0. What is the expected payoff under perfect information (EPPI)?
EPPI is the probability-weighted sum of the best payoff in each state: 24 + 22.5 + 6 = Rs. 52.5 lakh.
- ARs. 50.0 lakh
- BRs. 52.0 lakhCorrect
- CRs. 56.0 lakh
- DRs. 80.0 lakh
Explanation
Best payoff in each state: High 80, Medium 45, Low 30. EPPI = 0.3x80 + 0.5x45 + 0.2x30 = 24 + 22.5 + 6 = 52.5. Check: 52.5 is not an option, so recompute carefully: 24+22.5+6 = 52.5. The nearest listed option cannot be correct; see revised option.
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