(DECISION TREE). You have located a piece of property that you would like to buy to build a factory on. It is currently zoned for multi-family housing but you are planning to request new zoning. You are given the following information: Cost of land: $2,000,000 Probability of rezoning: 0.60 If the land is rezoned, the cost for site prep, utilities, etc.: $1,000,000 If the land is rezoned, you must decide whether to: 1) build a large factory at a construction cost of $10M that can produce 150,000 units/year and, depending on the market, has a 70% chance of making $4M/year profit, and a 30% chance of making $5M/year profit; or 2) a smaller factory at a construction cost of $9M that can produce 100,000 units/year and, depending on the market, has a 60% chance of making $4.5M/year profit, and a 40% chance of making $3M/year profit. However, if the land is not rezoned, you must comply with the existing zoning. You do not need to spend $1 M on site prep but now you will build 600 apartments at a construction cost of $5M and rent each one at a $3,000 profit/year. part A Draw the decision tree with the probabilities on each branch: Answer part B If the land is rezoned, what is the expected 1-year return on investment (ROI) for each of the two factory options? Would you build the large or small factory? Answer part C If the land is not rezoned, what is the expected 1-year return on investment (ROI) for building the apartments? Answer part D Since you don't know the zoning outcome at the time of purchase, what is the overall expected 1-year ROI for this project? Do you think it's a good investment? Answer (DECISION TREE). You have located a piece of property that you would like to buy to build a factory on. It is currently zoned for multi-family housing but you are planning to request new zoning. You are given the following information: Cost of land: $2,000,000 Probability of rezoning: 0.60 If the land is rezoned, the cost for site prep, utilities, etc.: $1,000,000 If the land is rezoned, you must decide whether to: 1) build a large factory at a construction cost of $10M that can produce 150,000 units/year and, depending on the market, has a 70% chance of making $4M/year profit, and a 30% chance of making $5M/year profit; or 2) a smaller factory at a construction cost of $9M that can produce 100,000 units/year and, depending on the market, has a 60% chance of making $4.5M/year profit, and a 40% chance of making $3M/year profit. However, if the land is not rezoned, you must comply with the existing zoning. You do not need to spend $1 M on site prep but now you will build 600 apartments at a construction cost of $5M and rent each one at a $3,000 profit/year. part A Draw the decision tree with the probabilities on each branch: Answer part B If the land is rezoned, what is the expected 1-year return on investment (ROI) for each of the two factory options? Would you build the large or small factory? Answer part C If the land is not rezoned, what is the expected 1-year return on investment (ROI) for building the apartments? Answer part D Since you don't know the zoning outcome at the time of purchase, what is the overall expected 1-year ROI for this project? Do you think it's a good investment