The company should acquire additional information from the consultants to be sure about the…
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a) The company should acquire additional information from the consultants to be sure about the existance of oil.
b) The forecast is usually correct, but can be incorrect. Imperfect information is not as valuable as perfect information. The value of information (either perfect or imperfect) may be calculated as follows:
Expected Profit (Outcome) with the information LESS Expected Profit (Outcome) without the information =
= 0.8*0.95*(70 – 10 – 3) – 0.8*(70 – 10) = -4.68 million.
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