Energy investment with information the company in exercises, Ask an Expert

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Energy investment with information. The company in Exercises 18, 26, and 28 could send a team to Saudi Arabia to obtain additional information about the probabilities that oil will increase or decrease in price. They hope that the fact-finding trip would choose between the two alter- natives considered in Exercise 26, or they could just esti- mate that the probabilities are equal.

a) Make a decision tree for these decisions.

b) Should the company send the fact finding trip? Explain.

c) The company's experts estimate that if they send the fact-finding mission, there's a 70% chance that they'll conclude there's a 0.4 probability of higher oil prices. What would the value of the additional information be to the company?

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Accounting Basics, Accounting

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