Introduction

A local commercial real estate business, Keystone Properties, has hired you as a quantitative analyst.The owners are concerned that their traditional way of making decisions (experience and gut feel, generally) is not allowing them to maximize the business's potential.They have hired you to help them make a variety of sound decisions based on a scientific approach.

The company has provided you with as much information as they have, and it is up to you to determine the best quantitative approach to answering their questions.The company has also made it clear that it is crucial that you explain analysis and calculations in such a way that a group of people unfamiliar with quantitative analysis can understand what you are doing and feel comfortable with the results.If you just provide a numerical answer to their questions, while still helpful, this will not meet their expectations for the project.

Deliverable

Keystone has requested that you answer their questions in the form of a business report in MS Word format.Simply typing in answers to their questions below will be construed as a lack of professionalism. The writing must be free of errors and easy to understand for someone unfamiliar with quantitative analysis. The exact design of the report is up to you, as Keystone does not really care about the aesthetics as long as you answer all of their questions in an organized and coherent report.Keystone specifically requests that you include any equations and calculations that you had done to be completely transparent.Any graphs or diagrams can be included in the body of the report or in an appendix as you see fit.

Keystone Property's Specific Questions

1.Keystone can only properly market a limited number of properties.They are trying to figure out which property they should select to add to their portfolio among four candidates (and in so doing, gain some insight into how to make such decisions in the future).There is some uncertainty as the selling price (and therefore commission/profit) depends on the state of the real estate market 6 months in the future.Based on their experience, Keystone has provided an estimate of selling prices for a "good" real estate market and a "bad" real estate market for the four candidate properties (see below).Even with these estimates, though, Keystone managers are unsure which property to choose.Keystone managers consider themselves to be optimistic about the future, but would like to consider a variety of ways to make this decision.When asked how likely they think it is that the market will be good, Keystone said "about a 60% chance".Keystone also mentioned that they are curious about "opportunity loss", but they have no idea what this means or how to incorporate it into their decision making process.Keystone also noted that they could pay for market forecasts that will help predict good and bad markets, but they have not done so in the past.They would like some help deciding whether to purchase the forecasts.

Sales Price (in millions)

Alternatives Bad Market Good Market

Property 1 2.3 3.7

Property 2 1.7 3.9

Property 3 2.9 2.4

Property 4 2.3 2.6