Question

Delaware National Golf Club went out of business during the recent downturn in the economy (a sad day in the Donnelly household). Susan is a real estate developer who would like to build houses on a portion of it. To do so Susan will need the approval of the county government to change how the land is zoned. The following decision table shows the scenario’s payoffs and probabilities.
Susan has the choice of purchasing an option to buy the land next year for $ 30,000. This will give her the opportunity to gain the support of the homeowners on the golf course, which will increase the likelihood of the county approving the zoning change. Susan estimates there is a 40% chance she will be able to obtain the support of the residents. With the support of the residents, the probability that the county will approve the zoning change is 56.6%. Without the residents’ support, the probability of the county’s approval is only 12.1%.
a. Construct a decision tree to recommend a course of action for Susan.
b. What is the most that Susan should pay to purchase the option to buy the land?


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  • CreatedJuly 29, 2015
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