Mackelprang Inc. is in the initial stages of building the premier planned community in the greater Phoenix, Arizona, metropolitan area. The main selling point will be the community’s lush golf courses. Homes with golf course views will generate premiums far larger than homes with no golf course views, but building golf courses is expensive and takes up valuable space that non-view homes could be built upon. Mackelprang, Inc. has limited land capacity. In order to maximize its profits, it is faced with a decision as to how many golf courses it should build, which in turn will impact how many homes with and without golf course views it will be able to construct. Mackelprang, Inc. realizes that this decision is directly related to the premium buyers will be willing to spend to buy homes with golf course views. Mackelprang, Inc., is required to build at least one golf course, but has enough space to build up to three golf courses. The following table indicates the costs and potential revenues for each course:

a. Which golf course or courses should Mackelprang Inc. build?

b. What is the expected payoff for this project?

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Cost Highest Possibie Reverue Probability of High Revenue Likely Revenue Probability of Likely Revenue Lowest Possible Revenue Probability of Low Revenue Indian River S2 6M $4M 0.3 $2.5M 0.4 $1M 0.3 The Cactus $1.25M $2M 0.2 $1,5M 0.5 $1M 0.3 Wildwood $2.5M $2M 0.3 $4M 0.5 $1M 0.2