A builder has located a piece of property that she would like to buy and eventually build on. The land is currently zoned for four homes per acre, but she is planning to request new zoning. What she builds depends on approval of zoning requests and your analysis of this problem to advise her. With her input and your help, the decision process has been reduced to the following costs, alternatives, and probabilities:

Cost of land: $4 million.

Probability of rezoning: 0.50.

If the land is rezoned, there will be additional costs for new roads, lighting, and so on, of $1 million.

If the land is rezoned, the contractor must decide whether to build a shopping center or 1,300 apartments that the tentative plan shows would be possible. If she builds a shopping center, there is a 70 percent chance that she can sell the shopping center to a large department store chain for $5 million over her construction cost, which excludes the land cost and rezoning cost; and there is a 30 percent chance that she can sell it to an insurance company for $2 million over her construction cost (also excluding the land and rezoning costs). If, instead of the shopping center, she decides to build the 1,300 apartments, she places probabilities on the profits as follows: There is a 50 percent chance that she can sell the apartments to a real estate investment corporation for $2,200 each over her construction cost; there is a 50 percent chance that she can sell each apartment directly to a customer and get $2,200 each over her construction cost. (Both exclude the land and rezoning costs).

If the land is not rezoned, she will comply with the existing zoning restrictions and simply build 625 homes, on which she expects to make $4,000 over the construction cost on each one (excluding the cost of land).

Completing the decision tree diagram given here, answer the following questions a. What is the expected value for the rezoned shopping center, including the land cost and the rezoning cost? (Do not round your intermediate calculations. Enter your answers in millions rounded to 2 decimal places. Negative amounts should be indicated by a minus sign.)

Expected value Answer -0.9 million

b. What is the expected value for the rezoned apartments, including the land cost and the rezoning cost? (Do not round your intermediate calculations. Enter your answers in millions rounded to 2 decimal places. Negative amounts should be indicated by a minus sign.)

Expected value Answer million

c. If the land is rezoned, what should the contractor decide? Answer

d. What is the expected value, if the land is not rezoned (including the land cost)? (Do not round your intermediate calculations. Enter your answers in millions rounded to 2 decimal places. Negative amounts should be indicated by a minus sign.)

Expected value Answer million

e. What is the expected net profit of entire project, including all applicable costs? (Do not round your intermediate calculations. Enter your answers in millions rounded to 2 decimal places. Negative amounts should be indicated by a minus sign.)

Expected net profit Answer