Brian Randall, president of Ball Properties, is contemplating responding to a request for bids on a foreclosure property that will be sold at state auction. Mr. Randall is considering submitting a $6 million bid. Based on analysis of previous auctions, this bid amount will only have a 35% chance of being the highest bid and winning the chance for Ball to purchase the property. The current date is May 1. All bids for the property must be sealed and submitted by July 15. The highest bid will be revealed on August 1st. If Balls bid is the highest bid and they can obtain the foreclosed property, they firm plans to build and sell a multi-functional retail complex. However, a complicating factor is that the property is currently zoned for residential only. Brian would need to obtain a referendum to change the zoning to allow construction of the retail complex which would need to be approved in the next election. The process for the sealed-bid requires submission of a certified payment for 10% of the amount of the bid ($600K). If the bid does not win, the deposit is refunded. If the bid wins, the deposit is applied as a down payment for the purchase. However, if the bid wins and the bidder does not follow through with the purchase within three months, the deposit is forfeited. To determine whether Ball should submit the $6 million bid, Brian analyzed some past zoning elections. Based on his analysis, there is a 40% chance that the referendum for a zoning change will be approved. If the zoning change is approved, the estimated revenue for the sale of the retail complex will be $18 million. The estimated property cost would be $6 million dollars (already would have paid the $600K deposit, so only $5.4 million additional) and the estimated construction cost would be $8 million. If Ball wins the bid for the property but the zoning change is rejected, Brian will not complete the purchase of the property. In this case, Ball would forfeit the 10% deposit ($600K) that was submitted with the bid. Since getting the zoning change approved is such a significant part of the decision process, Brian suggested that the firm hire a market research firm to survey potential voters for the referendum. The survey would provide better estimates of whether or not the referendum for re-zoning would win at election. The market research firm will charge $60,000 for the study and the results of the study will be available by July 1, so Brian will have this information before the July 15 bid deadline. From the survey, the marketing firm will predict if the re-zoning will be approved (40% likely) or rejected (60% likely) by the voters. Brian needs to consider how well the market survey will be able to predict the actual vote results. If the survey predicts that the zoning change will be approved, there is a 90% chance that it will be approved in the actual vote and only a 10% chance that it will not be approved. However, if the market research survey predicts that the zoning change will not be approved, Ball will decide not to submit the bid. Use this information, to advise Ball Properties on their decision. Prepare an Executive Summary report (approximately 1 to 2 pages (plus appendices) and include the following sections) that summarizes your findings and recommendations. Be sure to include the following in your report: 1. (20 points) Case Synopsis (include a brief summary of the case and the business issue(s)being studied) 2. (40 points) Methodology (including a discussion of what information was provided and how you used this information to analyze the problem) (a) Organize the available data on cost, revenue, and probability estimates in a table. (b) Draw and solve the decision tree that shows the logical sequence of the decision problem. You may either draw out the decision tree using the drawing tools in Word/PPT or you may use TreePlan to enter the problem into Excel. Be sure to label all branches. 3. (20 points) Findings and Conclusions (include summary of analysis results) Based on your analysis, respond to the following: (a) Provide a recommendation for Ball including their decision to employ the market research service and a recommendation that Ball should follow if the survey is conducted. Included the expected return (profit) for the decision. (b) SENSITIVITY ANALYSIS 1: If the estimated revenue for the retail outlet sale was actually $20 million (not $18 million), would your decision change? If so, how? (c) SENSITIVITY ANALYSIS 2: If the estimated revenue for the retail outlet stayed at $18 million but the cost of the survey was $70K (not $50), would your decision change? If so, how? 4. (20 points) Recommendations. For your management perspective, what other factors (not included in the model) need to be considered in making the recommendations? Do you agree with the decisions from your quantitative analysis? Why or why not.