Final answer:
The expected value of perfect information (EVPI) is the maximum amount a decision maker should be willing to spend to obtain perfect information about the uncertain outcomes of a decision. In this case, the EVPI is $200,000.
Step-by-step explanation:
The expected value of perfect information (EVPI) is the maximum amount a decision maker should be willing to spend to obtain perfect information about the uncertain outcomes of a decision. It represents the difference between the expected payoff under perfect information and the expected payoff under uncertainty.
In this case, we need to compare the expected payoffs of each investment option. The expected payoffs are:
- Option A: $200,000
- Option B: $600,000
- Option C: $400,000
To calculate the EVPI, we need to determine the probability of each investment option. Based on the given information, Option C has the lowest probability of loss, so it is the best choice. Therefore, the EVPI is $600,000 - $400,000 = $200,000.