a. What are the decision alternatives? b. What are the possible states of nature? Hartsfield International Airport

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Question:

a. What are the decision alternatives? b. What are the possible states of nature?

Hartsfield International Airport in Atlanta, Georgia, is one of the busiest airports in the world. Plans are being made to build another airport outside the city limits. Two possible locations for the new airport have been identified, but a final decision will not be made for a year. The Magnolia Inns hotel chain intends to build a new facility near the new airport once its site is determined. Land values around both possible sites for the new airport are increasing as investors speculate that property values will increase greatly in the vicinity of the new airport.

Magnolia Inns Real Estate Acquisition Analysis


A B
Current purchase price	$18	$12
Present value of future cash flows if hotel and airport are built at this location	$31	$23
Present value of future sales price of parcel if the airport is not built at this location	$6	$4