Unit 3 DB Reply 1

Hello Imani, I really enjoyed your post not only because it was easy to understand in terms of the content we are studying in this unit, but also because it was cool to see that you are applying your real-life business into this class scenario! I will be taking your table as seen in your post and adding into the ‘risk level’, or probability value, to each state of nature included. You can see my update chart below. Maximum Decision Process State of Nature 1 State of Nature 2 State of Nature 3 Alt. Value 3 New Stores 900 300 -300 900 1 New Store 300 100 -100 300 No New Store 0 0 0 0 Probability 0.30 0.35 0.40 Now, I will calculate the expected monetary value (EMV) for each alternative. In this case, the alternatives are adding 3 new stores in different locations, adding one new store, or no store, which can be referred to “doing nothing”. See calculations below. 3 New Stores: (.30) 900 + (.35) 300 + (.40) -300 = 270 + 105 + -120 = 255 EMV for alternative of ‘3 New Stores’ = 255 1 New Store: (.30) 300 + (.35) 100 + (.40) -100 = 90 + 35 + -90 = 85 EMV for alternative of ‘1 New Store’ = 85 No New Store: In this case, we do nothing, so the EMV is 0 or nonexistent. The alternative that is best based on the maximum EMV value is the first option, adding the 3 new stores. (because 255 is greater than 85) Now, I will calculate the expected value with perfect information (EVwPI) from the chart and calculations above. EVwPI: (0.30) 900 + (.35) 300 + 0 (-300) 270 + 105 = 375 Expected value with perfect information: 375 Lastly, I will calculate the expected value of perfect information (EVPI) by subtracting the max EMV from the EVwPI, in which you can see below. EVPI: 375 – 255 = 120 Expected value of perfect information: 120