FRS Ltd is considering undertaking a project, the cash flow outcome of which depends on

whether market demand proves to be weak (probability 0.25) or strong (probability 0.75).

Weak market demand will result in a negative cash flow of £180,000, while strong market

demand will give rise to a positive cash flow of £500,000.

A market research consultant has offered to prepare a forecast on whether the market

will be weak or strong for a fee of £80,000. Past experience with this firm indicates that

it has a 0.8 chance of correctly forecasting strong market demand and a 0.6 chance of

correctly forecasting weak market demand.

Requirements

(a) Advise FRS Ltd on whether or not the project is viable without the forecast.

(b) Advise FRS Ltd on whether or not the value of the forecast to FRS Ltd is greater or

less than the fee requested by the consultant.