Question: Please Draw a decision tree to solve part B only Part B The investor has the option to hire a consulting company to narrow down

Please Draw a decision tree to solve part B only

Please Draw a decision tree to solve part B only Part

Part B

The investor has the option to hire a consulting company to narrow down the chances of facing a strong or weak real estate market. The cost of hiring this consulting company is $5,000. If the investors hire the consulting company, it provides a report about the state of the future economy, which shows either economic growth or decline. The consulting company informs the investor that:

If the future state of the economy is economic growth, then the probabilities of strong and weak real estate market conditions are 90% and 10%, respectively.

If the future state of the economy is an economic decline, then the probabilities of strong and weak real estate market conditions are 30% and 70%, respectively. The current macroeconomic indicators show a 60% chance of economic growth and a 40% chance of economic decline.

Draw a decision tree that includes the option of hiring the consulting company and answer the following:

5- What is the best course of action (best set of decisions)?

6- What is the expected profit for the best course of action?

7- Build a risk profile table

An investor is to purchase one of three types of real estate. The investor must decide among an apartment building, an office building, or a warehouse. The profit resulted from purchasing each of these types of real states depends on the real estate market condition as stated in the following table. Decision Real Estate Market Condition (Purchase) Strong Real Weak Real Estate Market Estate Market Apartment Building $ 35,000 $ 30,000 Office Building $ 100,000 $ - 70,000 Warehouse $ 40,000 $ 25,000 The probability of a strong real estate market is estimated to be 60% and the probability of a real weak real estate market is estimated to be 40%. Part (a) [60% of the grade) Draw a decision tree and answer the following questions: 1- What is the best decision (purchase option) 2- What is the expected profit of this option 3- Build a risk profile table 4- What is the EVPI (Expected Value of Perfect Information) [Optional Extra Credit]

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Accounting Questions!

An investor is to purchase one of three types of real estate. The investor must decide between an apartment building, an office building, or a warehouse. The profits from purchasing these real estate...

An investor is to purchase one of three types of real estate. The investor must decide between an apartment building, an office building, or a warehouse. The profits resulting from purchasing these...

RE An investor is to purchase one of three types of real estate. The investor must decide among an apartment building, an office building, or a warehouse. The profit resulted from purchasing each of...

PUAD 630 - A NALYTICAL T ECHNIQUES U NIVERSITY OF B ALTIMORE , C OLLEGE OF P UBLIC A FFAIRS S EZGIN AYABAKAN , P H D Assignment 5 Individual or in Pairs Due Date: Dec 07, 2015 at 10:00AM There are...

Please make the calculations and analysis clear (with formulas if needed). 1) A car producer must decide today if a new model is launched. The model will be sold during five years. If the decision is...

please help answer this question, please use the decision tree in excel that where I am the most lost. General Ford Motors ( GFM ) has developed a new electric vehicle ( EV ) called the Amp. They are...

Problem 2 You are considering three investment options (and, of course, you could choose not to invest). You have $50,000 to invest and for your consequence you will consider the cash (in thousands...

Marsh Meadow Marsh Meadow is a 24 hectare site in a semi-rural area that is becoming part of the commuter belt of a growing European city. The site is zoned for residential development, but its...

TACKLE ALL PARTSP5 Problem 1 The Airfare Problem1. You are trying to get the cheapest airfare that you can. You just called up and found that the ticket home will cost $400, and it cannot be refunded...

The file P1712xlsx contains data on 178 wines They are categorized into three types, labeled A, B, and C The rest of the variables are numeric properties of the wines Using a Microsoft Data Mining...

EMX Corporation, in order to raise the market price of its comon shares, decided to buyback the stock: 02/15 Purchased 25,000 shares of its common stock @ $10.00 pershare. 03/24 Sold 10,000 shares @...

You attempt to reconcile a company's bank accounts. There is a difference of $ 8 1 . 0 0 between the bank statement's ending balance and the book balance. You cannot locate an $ 8 1 . 0 0...

Bridgeport Company's inventory records show the following data for the month of September: A physical inventory on September 30 shows 160 units on hand. Calculate the value of ending inventory and...