Case 1 - The Estate of Erich Blackman (Based loosely on either true events or events from HBO's Silicon Valley) Background Erich Blackman was a Silicon Valley investor who amassed a large fortune before running away overseas and retiring on a small island in Southeast Asia. Initially after his sudden departure, he continued to be an active entrepreneur and to grow his fortune by building and investing in successful businesses from his new island home. After a few years, however, he completely disappeared from public life and now rumors have begun to spread that Erich Blackman is dead. Jimmy Li is an old friend and business partner of Blackman's. As Blackman apparently left behind no children or other legal next of kin, Jimmy believes that he has a right to a share of the Blackman inheritance. He even claims the existence of a document signed by Blackman, which declares Jimmy a beneficiary as part of the terms of an earlier partnership agreement. Currently, Jimmy believes this document is stored in the archives of another business now owned by a different former business partner, but he is relatively sure that he will have no trouble acquiring the document. The executors of the Blackman estate are aware of Jimmy's assertion and have offered him a settlement of $15 million to walk away and forgo any claim he may have. In order to help navigate this situation, Jimmy has hired your team of analysts to review his options and provide a recommendation. Several hurdles stand between Jimmy Li and the Blackman estate. First, Blackman has yet to be declared legally deceased. Jimmy's attorneys have begun a legal petition to the courts to make the official declaration and estimate the probability of success to be 0.60. If the petition is denied, the attorneys plan to challenge the decision and estimate a 0.30 probability that the challenge will succeed and ultimately result in an official declaration of death. Even if Blackman is declared legally dead, Jimmy still needs to obtain the alleged document proving his claim to the estate. His attomey's believe that the probability of Jimmy obtaining access to the archives is 0.70. The probability of the document being subsequently found in the archives is estimated to be 0.80. Finally, if Blackman is declared dead and Jimmy manages to obtain the necessary evidence for his case, Jimmy's lawyers predict that the trustees of the Blackman estate are likely to offer Jimmy a settlement of $40 million rather than go to court. If taken to court, Jimmy's advisors predict a 0.20 probability that the case will be dismissed. If successful, the amount of money Jimmy will inherit depends on other simultaneous claims made to the estate. His attorneys predict a 0.04 probability of receiving $338 million, a 0.16 probability of receiving $68 million, a 0.40 probability of receiving $34 million, and a 0.20 probability of receiving $17 million. Assignment 1. Use principles of good spreadsheet design to create a spreadsheet model for this decision:

a. Use EMV where necessary to create payoff values (Hint: You may want to create a decision tree for this problem and use backward induction to create expected values. You do not need to create the tree in Excel, but your spreadsheet model should include informative notes about how expected values are calculated.)

b. Which choice has the best EMV?

2. What is the minimum settlement value he should accept according to EMV?

3. What OTHER issues might you want to consider?

a. Consider creating Data Tables to show how the result is sensitive to various inputs.

4. What do you advise?