What is the expected value of perfect information

Assignment Help Financial Management

Reference no: EM131448374

Immigration Canada is trying to decide whether new immigrants from a particular country should be tested for a contagious disease that is endemic to that country. Part of the decision rests on potential impacts to the Canadian economy. Each immigrant who is admitted to Canada and has the disease will cost the national health scheme $100,000. Each healthy immigrant admitted will contribute $10,000 to the economy. Assume that 10% of all potential immigrants have the disease. The government can admit all immigrants, admit no immigrants or it can test immigrant applicants for the disease before making the admission decision. It costs $100 to test a person for the disease and the test result is either positive or negative. A person who does not have the disease always tests negative. However, 20% of all people who do have the disease test negative. The government’s goal is to maximize the net value to the economy.

a. Decide upon the best course of action using a decision tree to outline the decision problem. Explain the decision in non-technical language.

b. What is the expected monetary value of an immigrant given your plan? What is the expected value of the test (EVSI)?

c. What is the expected value of perfect information (EVPI)?

Reference no: EM131448374

Questions Cloud

Management of many multi-million dollar corporations : In 2002, after the accounting deceptions of the management of many multi-million dollar corporations (with Enron being the benchmark name of that time period), the Security and Exchange Commission (SEC) successfully lobbied the U.S. Congress to pass ..

What price must you sell the bond for-is this realistic : You have paid $990 for an 9% coupon bond with a face value of $1,000 that matures in five years. You plan on holding the bond for one year. If you want to earn a 10% rate of return on this investment, what price must you sell the bond for? Is this re..

How much will the bonds price change : A $1,000 par value bond with five years left to maturity has 6% coupon rate. Couponpayment is made annually and the bond is priced to have a 5% yield to maturity (YTM). If the YTM surprisingly increases by 0.5%, by how much will the bond’s price chan..

Compare with the corporate valuation model : Stories in the business press typically comment on a company's earnings and its price/ earnings ratio as a guide to valuation. What's right or wrong with this? How does it compare with the Corporate Valuation Model we are using? Is Enron relevant to ..

What is the expected value of perfect information : Immigration Canada is trying to decide whether new immigrants from a particular country should be tested for a contagious disease that is endemic to that country. Part of the decision rests on potential impacts to the Canadian economy. Decide upon th..

Calculate the direct and indirect costs of those incidents : The average real after tax profit margin for a business often ranges from 1% to 6% on average. Pick a profit margin and then for 3 different scenarios calculate the direct and indirect costs of those incidents and the amount of good and or services t..

Stock market is starting to rise little but is very volatile : Consider the idea that home prices have fallen and the stock market is starting to rise a little but is very volatile. Assume that you have $25,000 to put down on a $200,000 home which means you will have a mortgage payment of $175,000 without insura..

What are the portfolio weights of each stock : If you own 300 shares of Xerox at $18.04, 400 shares of Qwest at $8.85, and 200 shares of Liz Claiborne at $45.43, what are the portfolio weights of each stock?

Calculate the amount of the firms gross profit : Evening Story Corporation has sales of $4,562,360; income tax of $333,551; the selling, general and administrative expenses of $293,273; depreciation of $385,208; cost of goods sold of $2,889,580 and interest expense of $125,978. Calculate the amount..

User Account

All Pages