A company is planning to invest in three investment ventures. These are condominium (COND), land (LAND) or house and lot (HAL). All of these investment ventures will be used by the business but will only decide on one investment venture. The investments are faced with uncertainty as to whether there is high demand for the investment or low demand for the investment. The probability of high demand is 0.70 and the probability of low demand is 0.30.

If land is to invested, a profit of 75 million pesos will be realized for high demand and will decrease to 50 million pesos for low demand,

On the other hand, if there is a high demand for house and lot, a decision has to be made whether to locate it within Metro Manila or outside Metro Manila This also depends whether there is a poor, moderate or excellent economic condition, Based on economic data, the probability of poor economic condition is 0.20, moderate economic condition is 0.30 and excellent economic condition is 0.50. House and lot within Metro Manila can generate a profit of 75 million pesos for excellent economy, 70 million pesos for a moderate economy, and 65 million pesos for a poor economic condition. House and lot located outside Metro Manila is not far from within Metro Manila in terms of profit generation, although at a lower amount. The amount of decrease is 10 million pesos, 15 million pesos, and 20 million pesos for excellent, moderate and poor economic condition, respectively compared to profit realized within Metro Manila. For low demand, the company will generate a profit of 60 million pesos.

The prospect of investment in condominiums can only be achieved for high demand and they depend whether people will rent or buy the place near their workplace of less than 5 kilometers or within 5 to 10 kilometers. If the condominiums are within 5 to 10 kilometers, the company can generate a profit of 75 million pesos, 55 million pesos, 45 million pesos for excellent, moderate and poor economic condition, respectively. These amounts are much higher if it is situated within less than 5 kilometers by 5 million pesos, 15 million pesos, 20 million pesos if the economic condition is excellent, moderate and poor, respectively. You are asked by the President of the company to assist him in deciding the best investment venture.

a) If the demand is high how much would the company realize in profit for the investment in condominium? Answer in figure.

b) What is the expected profit of the company if house and lot will be located within Metro Manila during high demand? Answer in figure.

c) What is the expected profit realized by the company if it invest in house and lot?

d) Which investment venture will give the company the lowest profit? Use the abbreviation only.

e) Which investment venture will you recommend to the President of the company?
How much can the company realize? Answer in figure only.

The company is contemplating to hire a research agency. The company met with the research agency to discuss the possibility of providing reports on the uncertainty of economic variables on the decision to have an investment venture. Based on the experience of the agency, the probability of excellent economy given positive report is 0.75; probability of moderate economy given negative report is 0.45; and probability of poor economy given positive report is 0.20. The research agency offers PhP500,000as service fees.

f) What is the probability of positive report? Answer in 2 decimal places.

g) What is the probability of excellent economic condition given negative report? Answer in 4 decimal places.

h) What is EVSI? Answer in integer value i) Will the company accept the offer of the research agency? Answer YES or NO.

Answer rating: 100% (QA)

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