Thread: EV Problem
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Old 09-25-2002, 02:44 AM
BruceZ BruceZ is offline
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Join Date: Sep 2002
Posts: 1,636
Default Nevermind: The answer

I can't really make the above offer because you should not offer to buy the company for any price.

Let x be the value you offer, and let t be the true value of the company to the current owner. If t > x, then the ev is 0 since the company will refuse the offer. So the ev will only be non-zero if t is between 0 and x. The amount you gain is equal to 1.5t-x. This is the value of the company to you minus the cost. So the ev is:

ev = integral[0 to x](1.5t-x)*1/100dt

ev = -.0025x^2.

So your ev is always negative for any offer.
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