Any Economics majors who can help me here?

[CDBD]

Okay, I'm completely stumped on this question:

A person must decide whether or not to proceed with a particular investment project. If the project succeeds, She will gain $15 million. If the project fails, she will lose $3 million. She estimates there is a 20% chance that the project will succeed and an 80% chance it will fail.

There is a consultant that could tell her with certainty if the project succeed or fail, but only for a fee. What is the most that she should be willing to pay the consultant for the information? Explain. Assume that she correctly estimated the probabilities of the project’s likely success and failure.

I AM LOST on this one - can anyone please help?

[meg]

Look at the expected value with and without the consultant
no consultant =.8 x15 - .2 x 3
with consultant =.8 x15 -fee
Therefore the max fee would be .2 x 3=.6 million

[untied]

Ok I just wanted to point out that a consultant can never be certain whether a project will succeed or fail, but based on their analysis they can suggest whether if the investment is a good one or bad.

so many things would be considered by the consultant in deciding whether the investment is good or bad, for example if u invest in a restaurant they need to consider demand for the particular cuisine the restaurant offers which will ultimately contribute to its success.

U are askin wat is the most u shud pay the consultant, this wud entirely upon the consultant you chose, if he has a good track record i guess he would be chargin lots. Different consultants would charge different. Their fee would depend on how well they have predicted in the past, for eg, a lawyer would charge more if he has never lost a case.

Your question suggests you r askin a question related to economics....but really investments r not jus abt economics, it also relates to accounting and financial management.