Reno, Nevada is considering building a second airport to relieve congestion at the main airport and is considering two potential sites, A and B.Party Rock Hotel would like to purchase land to build a casino hotel at the new airport. The value of the land has been rising in anticipation of the airport and is expected to skyrocket once the city decides between locations A and B. Therefore, Party Rock would like to purchase the land now.Party Rock will sell the land if the city chooses not to locate the airport nearby.Party Rock has three choices:

• CHOICE 1: Purchase land at location A
• CHOICE 2: Purchase land at location B
• CHOICE 3:Do not purchase any land

Party Rock has collected the following data (all amounts are in millions of dollars):

LOCATION A LOCATION B

Current Purchase Price 28 16

Net profit if Airport and Hotel built at same site (does not include purchase price) 46 32

Sale price if airport not built at the site 10 7

a.Create a payoff table for this problem.

b.Should Party Rock do if their owner: (1) is conservative (2) is optimistic

c.If Party Rock determined that there is a 45% chance the airport will be built at location A and a 55% chance for location B. What Choice should Party Rock choose to maximize total net profit?

d.Would it be worthwhile for Party Rock hotel to place a $2M non-refundable deposit to be able to delay decision until after airport location is confirmed.HINT: use Expected Value of Perfect Information (EVPI).