Alternative A Alternative B Present value of costs incurred for selecting the alternative prior to knowing which state of nature actually occurs $7,000,000 $12,000,000 Present value of future revenues if the state of nature that actually occurs favors the selected alternative $75,000,000 $125,000,000 Present value of future recoverable costs if the state of nature that actually occurs does not favor the selected alternative $6,000,000 $5,000,000 Assume that there are four collectively exhaustive alternatives from which you must choose prior to knowing the actual state of nature that will occur.
• Select alternative A
• Select alternative B
• Select both alternatives A and B
• Select neither alternative A nor alternative B Assume that there are two collectively exhaustive states of nature that could occur.
• The state of nature that occurs favors alternative A.
• The state of nature that occurs favors alternative B. Assume that the estimated costs associated with selecting a given alternative must be incurred prior to knowing which state of nature will actually occur.
1. What is the payoff if alternative A is selected and the state of nature that occurs favors alternative A?
2. What is the payoff if alternative B is selected and the state of nature that occurs favors alternative A?
3. What is the regret if alternative A is selected and the state of nature that occurs favors alternative B?
4. What is the regret if alternative B is selected and the state of nature that occurs favors alternative A?