Question
Dave owns a condo in the Far East and is considering buying a new apartment in Italy, but his wife would rather spend the money
Dave owns a condo in the Far East and is considering buying a new apartment in Italy, but his wife would rather spend the money on modernizing their current condo. Dave had previously considered modernizing your condo, but purchasing or importing modern furniture in your city has been a problem in the Far East. Re-modelling costs of the condo if new furniture and fittings are available will cost $ 45,000, but there is a 50/50 chance that the furniture is not available locally and will need to be imported which will then cost $65,000. Dave has found an old townhouse in Naples but it will need a lot of work to make it habitable. The price is $105,000. He has found a local builder and he has given you a best-case cost of $55,000 and a worst-case cost of $75,000. The builder advises that the best case is 60% likely. Dave expects to get $160,000 for the sale of his condo, and now needs to discuss the possible outcomes with his wife. Draw a decision tree and calculate the Net Path Value (Expected Monetary Value).
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