dropdowns are YES/NO, GRAPH I/GRAPH II/GRAPH III, AND SMALL/MEDIUM/LARGE/SMALL OR MEDIUM/SMALL OR LARGE/MEDIUM OR LARGE/ SMALL, MEDIUM OR LARGE

Problem 4-15 The Lake Placid Town Council decided to build a new community center to be used for conventions, concerts, and other public events, but consacrable controversy surrounds the appropriate size. Many influential citizens want a large center that would be a showcase for the srca. But the mayor feels that if demand does not support such a center, the community wil lose a large amount of money. Ta provide structure for the decision process, the council naraned the building alternatives to three size: small, medium, and large. Everybody agreed that the critical factor in choosing the best size is the number of people who will want to use the new facility. A regional planning consultant provided demand estimates under three scenarios: worst-case, base-case, and best-case. The worst-case scenario corresponds to a situation in which tourism drops substantialy; the buse-case scenario corresponds to a situation in which Lake Piscid continues to attract visitors at current levels; and the best-case scenario corresponds to a substantial increase in tourism. The consultant has provided probability assessments of 0.10, 0.60, and 0.30 for the worst-case, base-case, and best-case scenarics, respectively. The town counci suggested using net cash flow over a 5-year planning horizon as the criterion for deciding on the best size. The following projections of net cash flow in thousands of dollars) for a 5-year planning horizon have been developed. All costs, including the consultant's free, have been included. Demand Scenario Center Size Worst-Case Base-Case Best-Case Small 403 99 Medium -250 650 800 | -400 a. What decision should Lake Placid make using the expected value approach? Medlum or Large b. Identify the risk profiles for the medium and large alternative .400 300 U 400 Ne Cash Flas 06 04 11) 0.2 -400 0 400 DO Na Cash Flow NIC Flow 0.4 400 400 300 Noush Flow Risk profile for medium-size community center: Graph (1) Risk profile for large-size community Center: Gruph () Given the mayor's concern over the possibility of losing money and the result of part (a), which alternative would you recommend Medium C. Computatha expected value of perfect information EVPIS 727 Do you think it would be worth trying to obtain additional information concerning which scenario is likely to occur? Best decision: Yes d. Suppose the probability of the worst-case scenario Increases to 0.2, the probability of the base-case scenario decreases to 0.5, and the probability of the best-case scenario remains at 0.3. What effect, any, would these changes have on the deds on recommendation? Small c. The consultant has suggested that an expenditure of $150,000 on a promotional campaign over the planning horizon wil effectively reduce Investment? probability of the worst case scenario to zero. If the campaign can be expected to also incresce the probability of the best-case scenario to 0.4, L it a good The input in the box below will not be graced, but may be reviewed and considered by your instructor Best- ce EV-605,000 dillerence 744,CNI-SES. IN 20.000 med noen anpin