High Places Studio a Solution
HIGH PLACES STUDIO (A)
Reputation damage not considered Cumm HBO Profit $ '000,000 Probability ≤x 0 0% 3 100% Movie Profit $ '000,000 0 Cumm Probability ≤x % 0
-$30m E
0.4 Not on Schedule
Associated Probability
Stop Production
(A) 0.75*$60m = -$45m
28%
Continue Production
(B) $30m - $60m = -$30m
28%
$3.9m B
0.3 Disappointment 0.7 Morgan Directs
(C) $35m -$60m = -$25m
13% -30 28
$3.48m D
Produce Movie
$26.5m A
0.6 On Schedule
0.2 Blockbuster
(D) $180m-$60m = $120m
8% -25 41
0.5 Hit
(E) $80m-$60m = $20m
21% -5 15% 10 15% 71 56
$2.5m C
0.3 McManus Directs
0.5 Hit
(F) $45m-$35m = $10m
0.5 Modest Disappointment
(G) $30m-$35m = -$5m
20
92
120
HBO Box Office
100
100%
(H) $3m
(A) EMV Calculations: EMVa = (-$25*0.3)+($120*0.2)+($20*0.5) = $26.5m EMVb = (-$30*0.4)+ ($26.5*0.6) = $3.9m EMVc = ($10*0.5) + (-$5*0.5) = $2.5m EMVd = ($3.9*0.7) + ($2.5*0.3) = $3.48m Based on the EMV calculations, High Places Studio should go ahead and produce the movie in order to maximize profit not considering risking company reputation
Information on whether Morgan will accept to direct the Tuna on Rye -$30m E Stop Production
0.4 Not on Schedule Continue Production
(A) 0.75*$60m = -$45m
(B) $30m - $60m = -$30m
$3.9m B
Information says Morgan will direct
0.3 Disappointment
(C) $35m -$60m = -$25m
0.7
$3.63m D
With Information
$26.5m A
0.6 On Schedule
0.2 Blockbuster
(D) $180m-$60m = $120m
0.5 Hit
$2.5m C
0.3
Information says Morgan will not direct
(E) $80m-$60m = $20m (F) $45m-$35m = $10m
0.5 Hit
$3m F
McManus directs
0.5 Modest Disappointment
(G) $30m-$35m = -$5m (H) $3m
HBO
No Information
(I) $3.48m
(d)(i) EMVd = ($3.9*0.7) + ($3*0.3) = $3.63m EMV with information on whether Morgan will accept to direct the Tuna on Rye =$3.63m EMV without information on whether Morgan will accept to direct the movie =$3.48m Cost of perfect information =$150,000.00 Conclusion Laura may seek information on whether Morgan will be available to direct the Tuna on
Reputation damage not considered Cumm HBO Profit $ '000,000 Probability ≤x 0 0% 3 100% Movie Profit $ '000,000 0 Cumm Probability ≤x % 0
-$30m E
0.4 Not on Schedule
Associated Probability
Stop Production
(A) 0.75*$60m = -$45m
28%
Continue Production
(B) $30m - $60m = -$30m
28%
$3.9m B
0.3 Disappointment 0.7 Morgan Directs
(C) $35m -$60m = -$25m
13% -30 28
$3.48m D
Produce Movie
$26.5m A
0.6 On Schedule
0.2 Blockbuster
(D) $180m-$60m = $120m
8% -25 41
0.5 Hit
(E) $80m-$60m = $20m
21% -5 15% 10 15% 71 56
$2.5m C
0.3 McManus Directs
0.5 Hit
(F) $45m-$35m = $10m
0.5 Modest Disappointment
(G) $30m-$35m = -$5m
20
92
120
HBO Box Office
100
100%
(H) $3m
(A) EMV Calculations: EMVa = (-$25*0.3)+($120*0.2)+($20*0.5) = $26.5m EMVb = (-$30*0.4)+ ($26.5*0.6) = $3.9m EMVc = ($10*0.5) + (-$5*0.5) = $2.5m EMVd = ($3.9*0.7) + ($2.5*0.3) = $3.48m Based on the EMV calculations, High Places Studio should go ahead and produce the movie in order to maximize profit not considering risking company reputation
Information on whether Morgan will accept to direct the Tuna on Rye -$30m E Stop Production
0.4 Not on Schedule Continue Production
(A) 0.75*$60m = -$45m
(B) $30m - $60m = -$30m
$3.9m B
Information says Morgan will direct
0.3 Disappointment
(C) $35m -$60m = -$25m
0.7
$3.63m D
With Information
$26.5m A
0.6 On Schedule
0.2 Blockbuster
(D) $180m-$60m = $120m
0.5 Hit
$2.5m C
0.3
Information says Morgan will not direct
(E) $80m-$60m = $20m (F) $45m-$35m = $10m
0.5 Hit
$3m F
McManus directs
0.5 Modest Disappointment
(G) $30m-$35m = -$5m (H) $3m
HBO
No Information
(I) $3.48m
(d)(i) EMVd = ($3.9*0.7) + ($3*0.3) = $3.63m EMV with information on whether Morgan will accept to direct the Tuna on Rye =$3.63m EMV without information on whether Morgan will accept to direct the movie =$3.48m Cost of perfect information =$150,000.00 Conclusion Laura may seek information on whether Morgan will be available to direct the Tuna on