The company is trying to decide between building a small, medium, or large development. The payoffs received for each size of development will depend on the market demand for condominiums in the area, which could be low or high. The payoff matrix for this decision problem is:

Market Demand:

Size of Development	Low	High
Small	400	400
Medium	200	500
Large	-400	800

Payoffs in the 1000's

The owner of the company estimates a 40% chance that market demand will be low and a 60% chance that it will be high.

a. Develop a decision tree to determine the best course of action recommended by the EMV criterion.

b. What is your recommended sequence of decisions and why?

c. What is the maximum amount Livermore Developers should be willing to pay for perfect information about market demand?

d. Create a risk profile showing payoffs for your recommended sequence of decisions and the probability those payoffs will occur.

e. Perform sensitivity analysis to show how the choice of development size changes as the probability of market demand changes. Your analysis should include a table of payoffs under different levels of market demand and a suitable visualization showing those payoffs.