A real estate investor has the opportunity to purchase land currently zoned residential If the county board approves a request to rezone the property as commercial within the next year, the investor will be able to lease the land to a large discount firm that wants to open a new store on the property However, if the zoning change is not approved, the investor will have to sell the property at a loss Profits (in thousands of dollars) are shown in the following payoff table State of Nature Rezoning Approved Rezoning Not Approved Decision Alternative S 1 S 2 Purchase, d 1 640 200 Do not purchase, d 2 0 0 b The investor can purchase an option to buy the land Under the option, the investor maintains the rights to purchase the land anytime during the next three months while learning more about possible resistance to the rezoning proposal from area residents Probabilities are as follows Let H High resistance to rezoning L Low resistance to rezoning P ( H ) 0 51 P ( S 1 H ) 0 16 P ( S 2 H ) 0 84 P ( L ) 0 49 P ( S 1 L ) 0 85 P ( S 2 L ) 0 15 What is the optimal decision strategy if the investor uses the option period to learn more about the resistance from area residents before making the purchase decision High resistance Purchase or Do not purchase Low resistance Purchase or Do not purchase c If the option will cost the investor an additional $10,000, should the investor purchase the option Yes or No Why or why not What is the maximum that the investor should be willing to pay for the option EVSI $ fill in the blank 7 If the demand probabilities are 0 2, 0 5, and 0 3, which decision alternative will minimize the expected cost of the data processing operation options are Own staff or Outside vendor or Combination What is the expected annual cost associated with that recommendation (in thousands of dollars) Expected annual cost $fill in the blank 2 Construct a risk profile for the optimal decision in part (a) What is the probability of the cost exceeding $700,000 If required, round your answer to two decimal places Probability fill in the blank 4

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A real estate investor has the opportunity to purchase land currently zoned residential. If the county board approves a request to rezone the property as

A real estate investor has the opportunity to purchase land currently zoned residential. If the county board approves a request to rezone the property as commercial within the next year, the investor will be able to lease the land to a large discount firm that wants to open a new store on the property. However, if the zoning change is not approved, the investor will have to sell the property at a loss. Profits (in thousands of dollars) are shown in the following payoff table:

	State of Nature
	Rezoning Approved	Rezoning Not Approved
Decision Alternative	S_₁	S_₂
Purchase, d_₁	640	-200
Do not purchase, d_₂	0	0

b. The investor can purchase an option to buy the land. Under the option, the investor maintains the rights to purchase the land anytime during the next three months while learning more about possible resistance to the rezoning proposal from area residents. Probabilities are as follows:

Let H = High resistance to rezoning
L = Low resistance to rezoning

P(H) = 0.51	P(S₁ \| H) = 0.16	P(S₂ \| H) = 0.84

P(L) = 0.49	P(S₁ \| L) = 0.85	P(S₂ \| L) = 0.15

What is the optimal decision strategy if the investor uses the option period to learn more about the resistance from area residents before making the purchase decision? High resistance: Purchase or Do not purchase

Low resistance: Purchase or Do not purchase

c.If the option will cost the investor an additional $10,000, should the investor purchase the option? Yes or No

Why or why not? What is the maximum that the investor should be willing to pay for the option? EVSI: $ fill in the blank 7

If the demand probabilities are 0.2, 0.5, and 0.3, which decision alternative will minimize the expected cost of the data processing operation? options are: Own staff or Outside vendor or Combination What is the expected annual cost associated with that recommendation (in thousands of dollars)? Expected annual cost = $fill in the blank 2
Construct a risk profile for the optimal decision in part (a). What is the probability of the cost exceeding $700,000? If required, round your answer to two decimal places. Probability = fill in the blank 4