Question

A person must decide whether or not to proceed with a particular investment project. If the project succeeds, She will gain $15 million. If the project fails, she will lose $3 million. She estimates there is a 20% chance that the project will succeed and an 80% chance it will fail.

There is a consultant that could tell her with certainty if the project succeed or fail, but only for a fee. What is the most that she should be willing to pay the consultant for the information? Explain. Assume that she correctly estimated the probabilities of the project’s likely success and failure.

I AM LOST on this one - can anyone please help?

Answer 1

A person must decide whether or not to proceed with a particular investment project. If the project succeeds, She will gain $15 million. If the project fails, she will lose $3 million. She estimates there is a 20% chance that the project will succeed and an 80% chance it will fail.

There is a consultant that could tell her with certainty if the project succeed or fail, but only for a fee. What is the most that she should be willing to pay the consultant for the information? Explain. Assume that she correctly estimated the probabilities of the project’s likely success and failure.

I AM LOST on this one - can anyone please help?