Question

Using the EVUII method, what will be the Final expected value?

success moderate success failur
probability 0.2 0.6 0.2
sell company 132 222 -222
form joint venture 150 250 211
sell software on own 333 111 -100
1) 259.7
2) 222.2
3) 244.2
4) 245.8

Answer 1

To find the final expected value using the EVUII method, each outcome's value is multiplied by its probability. The result is then summed for each investment option. The highest expected value is from forming a joint venture, with an EV of 222.2.

Step-by-step explanation:

The student is asking to calculate the Expected Value (EV) using the EVUII method, which stands for Expected Value Under Imperfect Information. To find the final expected value, you must multiply each outcome by its respective probability and then sum the results. The options are to: 1) sell a company, 2) form a joint venture, or 3) sell software on one's own. Here are the calculations for each option:

1. Sell company EV = (0.2 × 132) + (0.6 × 222) + (0.2 × -222) = 26.4 + 133.2 - 44.4 = 115.2
2. Form joint venture EV = (0.2 × 150) + (0.6 × 250) + (0.2 × 211) = 30 + 150 + 42.2 = 222.2
3. Sell software on own EV = (0.2 × 333) + (0.6 × 111) + (0.2 × -1001) = 66.6 + 66.6 - 200.2 = -66.6

Comparing the calculated expected values, the highest EV is associated with forming a joint venture, which is option 2 with an expected value of 222.2.