Beruflich Dokumente
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ASSUME
PROBABILITY IS SAME 0.1
THIS WAY .8+.1+.1= 1 MAKING APPROVAL, PENDING AND NOT APPROVED
EXHAISTIVE EVENTS.
We are given payoffs if ITNET waits and then sues after observing the result of its
application- X = 1 million. If it loses it gets 0.
B,
If ITNET sues expected gain = .7*400000 +.3*2=0 = 280000 -100000 = 180000
If it does not sue then expected gain = .8(.9*X+.1*0) +.1(.6*X+.4*0) +.1( .
4*X+.6*0 ) = .82X
If .82X > 280000 then it must wait and not sue now
F .82 X < 280000then it must sue now.
Put X= 1 million to get .82*1000000= 820000
Also legal costs imply net expected gain = 820 000-100 000 =720000
Clearly 7200000 > 180000 so it must wait and Not sue now.
It must wait for results of its application.
C.
NO as enet expected gains are 8200000> 5000000 it must not take the offer.