Business Modeling - INFO 3010 Name: Assignment 2: Due date: March 16th, 4 pm. Please write down your answers in this sheet and hand it to Srini. Assignment policies: You are not allowed to ask Srini specific questions about this assignment. However, he will be happy to answer general conceptual questions that may be useful for this assignment. As part of your learning, you may verbally discuss the assignment with your classmates but you are not allowed to copy a classmate's work. That would defeat the learning goal of this assignment. Note: There are 5 pages in this assignment. 1) (a) (2.5 points) Developing a small driving range for golfers of all abilities has long been a desire of Jeremy Jenkins. He believes that there is a 50/50 chance that the driving range will succeed or fail. A friend of Jeremy's has suggested that he should conduct a survey in the community to get a better feeling of the demand for such a facility. Such surveys are not perfect and will have some false negatives and false positives. A false negative happens when the survey provides a negative signal for a venture that will actually be successful. A false positive happens when the survey provides a positive signal for a venture that will actually be unsuccessful. Suppose the survey will have a false negative rate of x and a false positive rate of 0.30. What should be the value of x to ensure that there is 0.70 chance that the range will actually be successful if the survey provides a positive signal. 2|Page 3|Page b) (5 points) For this question please assume that x = 0.20. (The false positive rate is still 0.30.)The cost of the survey is $5000. If the driving range is successful then the net present value of the facility will be $200,000 (this figure does not include the cost of the survey). If it is unsuccessful then the net present value of the facility will be -$80,000 (this figure does not include the cost of the survey). Draw a decision tree and recommend the course of action for Jeremy that will maximize his expected net present value. Calculate the EVSI and EVPI for this decision situation. 4|Page 5|Page