A Town Council has decided to bulld a new community center to be used for conventions, concerts, and other public events, but considerable controversy surrounds the appropriate size. Many influential citizens want a large center that weuld be a showcase for the area, but the mayor feels that if demand does not support such a center, the community will lose a large amount of money. To provide structure for the decision process, the council narrowed the building alternatives to three sizes: small, medlum, and large. Everybody agreed that the critical factor in choosing the best size is the number of people who will want to use the new facility. A regional planning consultant provided demand estimates under three scenarios: worst case, base case, and best case. The worst-case scenario corresponds to a situation in which tourism drops significantly; the base-case scenario corresponds to a situation in which the town continues to attract visitors at current levels; and the best-case scenario corresponds to a significant increase in tourism. The consultant has provided probability assessments of 0.10,0.60, and 0.30 for the worst-case, base-case, and best-case scenarios, respectively. The town councl suggested using net cash fiow over a five-year planning horizon as the criterion for deciding on the best size. A consultant developed the following projections of net cash how (in thousands of dollars) for a five-year planning horizon. All costs, including the consultant's fee, are included. (a) What decision should the town make using the expected value approach? EV(5mali) EV(Mesium) Ev(Large) The beit decision is to buld a community center. (b) Construct nisk peofiles for the medium and large alternatives (Submit a file with a muximum size of I Me.). Ho tie choten Given the mayor's concern ower the possibility of losing money and the result of part (a), which aiternative would you recommend? small-size center medium-size center large-size center (c) Compute the expected value of perfect information. EVPI = Do you think it would be worth trying to obtain additional information concerning which scenario is llkely to occur? The town should consider additional Information about the likelhood of the three scenarios. The town should not consider additional information about the likelihood of the three scenarios. (d) Suppose the probability of the worst-case scenario increases to 0.2 , the probabinty of the base-case scenario decreases to 0.5 , and the probability af the best-case scenario remains at 0.3 . EV(Smai) Ev(Medium) EV(Large) What effect, if any, would these changes have on the decision recommendation? The best decision is to bulid a community center. (e) The consultant suggeuted that an expendture of 1150,000 on a promotional campaign over the planning horiton will effectiveiy reduce the probability of the worit-case scenane to zero. The campaign can be expected to also increate the probabity ef the best-case scenario to 0.4 . (Remember to subtract the cost of the premationat campaign from the expected value.) LV(senali) EV(Hedim) EV(Lao) The best decision is to build a. community center. Compaced to the analvsis in part (d), is this a good investment? What effect, if any, would these changes have on the decision recommendation? The best decision is to build a community center. e) The consultant suggested that an expenditure of $150,000 on a promotional campaign over the planning horizon will effectively reduce the probablity of the worst-case scenario to zero. The campaign can be expected to also increase the probability of the best-case scenario to 0.4 . (Remember to subtract the cost of the promotional campaign from the expected value.) EV(5mail) EV(Medium) EV(Large) The best decision is to bulid a community center; Compared to the analysis in part (d), is this a good investment? It is not a good investment as the risk of loss is eliminated. it is a good investment as the risk of loss is not eliminated. It is not a good investment as the risk of loss is not eliminated. It is a good investment as the risk of loss is eliminated