I believe that I am missing something. Please help clear this up. Thanks

Dave Davenport, CEO of Seaside Real Estate of Jacksonville, FL just acquired some land close to the Atlantic Ocean. He wants to use the land to develop a gated housing community that will include a clubhouse with a swimming pool, fitness center, tennis court, and a community garden. He is very enthusiastic to build charming cottage-style homes and needs to decide between three cottage styles: The Nautical, The Shoreline, and The Seaside. Each cottage type has a distinct floor plan and square footage with options of adding a fireplace, garage/carport, backward porch, etc. At the same time, he feels an uncertain economy makes ascertaining the demand for these new cottages difficult. Mr. Davenport realizes that building a specific type of cottage with more square footage and amenities followed by a poor economy could be very costly to the company. However, in a good economy, the firms profit will be much better. Seaside Real Estate management team has prepared the following anticipated profit/loss (in Millions) payoff table.

Decision Alternatives	States of Nature
	Poor Economy	Average Economy	Good Economy
Nautical Cottage, d1	3	-1	4
Shoreline Cottage, d2	-2	3	3
Seaside Cottage, d3	-1.5	4.5	6

a. If nothing is known about the demand probabilities, what is the best decision alternative using the Optimistic Approach?

GOOD
N	3
Sh	4
SE	6

If nothing is known about the demand probabilities, what is the best decision alternative using the Conservative Approach?

Poor
n	3
sh	-2
Se	-1.5

If nothing is known about the demand probabilities, what is the best decision alternative using the Minimax Regret b. Approach? USE THE LARGEST

	Poor	average	Good	COMPUTATIONS	MAX regret
N	3	-1	4	4-3= 1,4-1=3	3
SH	-2	3	3	1, 0	1 MIN.OPTION
SE	-1.5	4.5	6	4.5, 1.5	4.5

c. Suppose the probabilities for Poor, Average, and Good Economy are 40%, 25%, and 35%

respectively, what is the best decision alternative using Expected Value (EV) Approach?

	Poor 40%	Average 25%	Good 35%	EXPECTED VALUE
N	1.2	-0.75	1.4	1.85
SH	-8.0	.75	1.05	-6.2
SE	-0.6	1.125	2.1	2.625

D. What is the Expected Value of the Perfect Information (EVPI)?

2.625 million

7.05 million

4.425 million

1.8 million