Etobicoke Development Corporation EDC purchased land not far from the intersection of Dundas Street West and Kipling Avenue. The top managers of EDC , however, have different opinions on how this land can be used. Eventually, EDC commissioned preliminary architectural drawings for three different projects: HighRise Condos; Low Rise Condos,- Townhouse Complex. Also, it is recognized that the financial success of the project depends on the situation on the real estate market, Strong Demand or Weak Demand. The EDC expectations are summarized in the following table (payoffs are in $ millions). States of Nature Decision Alternatives Strong Demand HighRise Condos 21 LowRise Condos 11 Townhouse 6 Complex Originally, EDC specialists counted on 0.63 probability of strong demand. Simple Decision Tree Part (a) Suppose that you need to construct a simple decision tree that shows the logical sequence of the decision problem. Select the correct sketch of the decision tree based on the information above. Note that P(S)=probability of strong demand, P(W)=probability of weak demand. Also, we use the following notations: P1=Payoff 1, P2=Payoff 2 , P3=Payoff 3, P4=Payoff 4 , P5=Payoff 5, P6=Payoff 6. OP(S) = 0.63 , P(W) = 0, P1 = 21 , P2 = - 6, P3 = 11 , P4 = 4, P5 = 6, P6 = 4 High-Rise Condos High-Rise Condos Payoff 1 Payoff 4 P(S) P(W) Strong Low-Rise Condos Low-Rise Condos C Weak O Payoff 2 Payoff 5 Townhouse Complex Townhouse Complex Payoff 3 Payoff 6 OP(S) = 0.63 , P(W) = 0.37, P1 = 21 , P2 = - 6, P3 = 11 , PA = 4 , P5 = 6, P6 = 4P(S) Strong Payoff 1 High-Rise Condos P(W) Weak Payoff 2 P(S) Strong Low-Rise Condos Payoff 3 P(W) Weak Payoff 4 P(S) Strong Payoff 5 Townhouse Complex P(W) Weak Payoff 6 OP(S) = 0.37 , P(W) = 0.63, P1 = 21 , P2 = 11 , P3 = 6, P4 = - 6, P5 = 4, P6 = 4P(S) Strong Payoff 1 High-Rise Condos P(W) Weak Payoff 2 P(S) Strong Low-Rise Condos Payoff 3 O P(W) Weak Payoff 4 P(S) Strong Payoff 5 Townhouse Complex P(W) Weak Payoff 6 OP(S) = 0.63 , P(W) = 0.37, P1 = 21 , P2 = - 6, P3 = 11 , PA = 4 , P5 = 6, P6 = 4High-Rise Condos Payoff 1 P(S) Strong Low-Rise Condos Payoff 2 Townhouse Complex Payoff 3 High-Rise Condos Payoff 4 P(W) Weak Low-Rise Condos O Payoff 5 Townhouse Complex Payoff 6 None of the above.(b) Using the sketch from the previous question and TreePlan, construct a simple decision tree. Based on the simple decision tree answer the following questions. Keep 2 decimal places in the EMV answers. 0 Find the expected monetary value for High-Rise Condos decision. EM V(High-Rise Condos) = c Find the expected monetary value for Low-Rise Condos decision. EM V(Low-Rise Condos) 2 [ c Find the expected monetary value for Townhouse Complex decision. EMV(Townhouse Complex) 2 I (c) Using the simple decision tree determine the best decision policy. Construct High-Rise Condos if the demand is strong. Support Townhouse Complex project. Support Townhouse Complex project if the demand is strong. Go ahead with Low-Rise Condos project. Construct High-Rise Condos. (c) Using the simple decision tree determine the best decision policy. Construct High-Rise Condos if the demand is strong. Support Townhouse Complex project. Support Townhouse Complex project if the demand is strong. Go ahead with Low-Rise Condos project. Construct High-Rise Condos. Go ahead with Low-Rise Condos project if the demand is strong. None of the above. Revised Decision Tree Part The recent dramatic increase of the prime interest rate and still uncertain situation with COVlD19 affected the company's plans. Etobicoke Development Corporation managers are thinking about hiring Adobigok Research Group (ARG) to conduct a market research. Then, ARG would come up with either favorable report predicting strong demand, or unfavorable report predicting weak demand on the real estate market. It is known that in 80% of cases when strong demand took place, ARG had predicted it correctly. It is also known that in 86% of cases when weak demand occurred, ARG had predicted it correctly. ARG specialists need a month to complete their analysis, and they have to use expensive software, supercomputers, and hire additional computer and logistics analysts. (d) Suppose that you need to construct a revised decision tree. First, fill in the following revised probability tables for the favorable and unfavorable reports. Round joint probability values, P(Favorable), P(Unfavorable), and the posterior probability values to 4 decimals places. Probability Revisions given a Favorable Report State Posterior Probability Prior Conditional Probability of Probability P(Fav./State of Nature) Joint Probability P(State of Nature/ Fav.) Nature Strong 0.63 Weak 0.37 P(Favorable) = 1.0000 Probability Revisions given an Unfavorable Report State Prior Conditional Probability Posterior Probability of Probability P(Unfav./State of Nature) Joint Probability P(State of Nature/Unfav.) Nature Strong 0.63 Weak 0.37 P( Unfavorable) = 1.0000 (e) Using the revised probability tables, please identify the revised/posterior probabilities which you are going to use in the revised decision tree:Keep 4 decimal places in the following answers. P ( Strong demand | Favorable report ) = P( Weak demand | Favorable report) 2 P( Strong demad | Unfavorable report) 2 P( Weak demand | Unfavorable report) 2 (f) Now you start constructing the revised decision tree. Select the correct sketch of the leftmost part of the revised decision tree based on the information above. P(F) = 0.9068 , P(U) = 0.7163 OP(F) = 0.9068 , P(U) = 0.7163 P(F)=P(Favorable Report) Hire Favorable Report Do not hire High-Rise Condos P(U)=P(Unfavorable Report) Hire In Do not hire branch Unfavorable Report use EMV of the optimal Do not hire decision alternative or include the whole decision tree from the Hire Simple Decision Tree P(F)=P(Favorable Report) part of the solution. Favorable Report Do not hire Low-Rise Condos P(U)=P(Unfavorable Report Hire Unfavorable Report Do not hire P(F)=P(Favorable Report) Hire Favorable Report Townhouse Complex O P(U)=P(Unfavorable Report) Hire Unfavorable Report O P(Hire) = 0.8 , P(Do not hire) = 0.86 Favorable Report P(Hire) In Favorable report Hire branch use EMV of the optimal decision Unfavorable Report alternative or include the whole decision tree Favorable Report from the Simple Decision Tree part of P(Do not Hire) the solution. Do not hire Unfavorable ReportOP(F) = 0.578 , P(U) = 0.4064 P(F)=P(Favorable Report) Favorable Report Hire O P(U)=P(Unfavorable Report) Unfavorable Report High-Rise Condos O Do not In Do not hire branch hire use EMV of the optimal decision alternative or P(F)=P(Favorable Report) include the whole Favorable Report decision tree from the Simple Decision Tree part of the solution. Hire O P(U)=P(Unfavorable Report) Unfavorable Report Low-Rise Condos O Do not hire P(F)=P(Favorable Report) Favorable Report Hire O P(U)=P(Unfavorable Report) Unfavorable Report Townhouse Complex Do not hire OP(F) = 0.5558 , P(U) = 0.4442Fit") 2 U.bbbt$ , 11w) 2 0.4442 P( F)=P( Favorable Report) Favorable Report / The probabilities P(F) Hire and PW) are calculated P(U)=P( {gfm'ombfe Report) using the revised Unfm'mb'e REM\" probability tables. _ Use EMV of the optimal decision D0 \"0t 1\"\" I. alternative or include the whole decision tree from the Simple '- Decision Tree part of the solution. None of the above. 3) Construct the revised decision tree and answer the following questions. {ound all EMV answers to 2 decimal places. 0 In case of favorable report, EM V(High-Rise Condos) 2 \\ o In case of unfavorable report, o In case of favorable report, EM V(High-Rise Condos) 2 EM V(Low-Rise Condos) 2 EM V(Townhouse Complex) 0 In case of unfavorable report, EM V(High-Rise Condos) 2 EM V(Low-Rise Condos) 2 EM V(Townhouse Complex) 0 In the revised decision tree, there are the expected monetary values (h) Based on the revised decision tree formulate the optimal decision policy. Note that in each key word you have to use the scroll-down menu to select the correct option. If you recommend not hiring ARG, please select NIA in case of favorablelunfavorable report. Select an answer Adobigok Research Group. If their report is favorable, then choose the Select an answer a project. If the report is unfavorable, then go ahead with the Select an answer a prOjeCt. (i) How much would Etobicoke Development Corporation be willing to pay at most for the information about future economic conditions? If you recommend not hiring ARG, please enter zero in the answer cell. Keep 2 decimal places in the following answer. EDC can pay up to (in $ millions) (j) How efficient the ARG information would be? If you recommend not hiring ARG, please enter zero in the answer cell. Round your answer to 1 decimal place. Efficiency 2 l I % l