Question 4.

The following is a dilemma faced by a property development company; this particular company regularly face similar questions in selecting which property to purchase next.

At a particular point in time the company can afford to purchase one additional property. They are considering two available properties, the first property, which we will call A, is in better condition and the seller has provided survey details giving a clear picture of its current value. Based on this the development company expect to be able to make 20000 profit from working on the property before selling it on.

There are less details available for the second property, which we will call B, and it is in an area where the property market is more volatile so the value after work has been done is harder to predict. Based on their previous experience the development company predict that if they purchase this property there is a 50% chance that they will make 38000 profit from working on the property before selling it. However, there is also a 50% chance that they will make no profit from working on this property.

There is also an option to pay 2000 for a detailed survey on the second property. There is a 50% chance that the survey result will be show that the property is in good condition and a 50% chance that it will identify that the property is in poor condition. If the survey shows that the property is in good order, there is a 70% chance of making 38000 and a 30% chance of making only 10000 due to the volatile market. If the survey shows that property is in poor condition, then there is a 70% chance of making no profit and a 30% chance of making 20000 profit.

1. Identify what method from the module should be used to assist the company, justify your answer.

2. Do all of the diagrams and calculations necessary to allow you to make a recommendation.

3. In this example the company makes similar decisions frequently. If the decision was being made only once, for example someone buying their first house, how if at all would this effect the decision-making process and the recommended option?

Write a report summarising your findings, including any diagrams you feel are relevant and your calculations, these can include photographs of handwritten working.