Question
Six Flags has been growing internationally as the global demand for amusement parks has enormous growth. One of the top contenders for the next international
Six Flags has been growing internationally as the global demand for amusement parks has enormous growth. One of the top contenders for the next international Six Flags location is in the suburbs of Barcelona, Spain. There are two potential locations within a 25 kilometer radius from central Barcelona. LOCATION 1 is north of the city and LOCATION 2 is to the west of Barcelona . In anticipation of the chosen location becoming a vacation destination and attracting many European tourists, a regional real estate development team is considering purchasing land in advance of the announcement in hopes of buying the land now (and eventually developing the area with hotels, restaurants, shops, etc). Of course, it is possible that Six Flags may decide on a completely different location (not near Barcelona) for their new amusement park location. If the real estate development team buys the land in one of the locations and Six Flags does not choose that option, the land will lose value and they will sell the land and not begin development. The real estate development group has three choices:
CHOICE 1: Purchase land at LOCATION 1
CHOICE 2: Purchase land at LOCATION 2
CHOICE 3: Do not purchase
The following data (all amounts are in millions of dollars) has been collected:
| SIX FLAGS SELECTS LOCATION 1 | SIX FLAGS SELECTS LOCATION 2 | |
| Current Purchase Price (pre-announcement) | 34 | 27 |
| Value of land if Six Flags decides to build park in that AREA (does not include purchase price/development) | 75 | 58 |
| Sale price if Six Flags announces that they will not built a park at that site | 19 | 16 |
| a. | Please provide an explantion on how to create a playoff table for this scenario |
| b. | What choice should the real estate company make if they are: (1) conservative (2) optimistic |
| c. | If the real estate company determined that there is a 45% chance that Six Flags will build a park near Location 1, a 50% near Location 2, and a 5% chance that Six Flags does not build a park near Barcelona. What option should they choose to maximize total net profit? |
| d. | Would it be worthwhile for real estate company to place a $5M non-refundable deposit to be able to delay decision until after Six Flags makes an announcement about its next location. HINT: use Expected Value of Perfect Information (EVPI). |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Introduction To Health Care Management
Authors: Sharon B. Buchbinder, Nancy H. Shanks
3rd Edition
128408101X, 9781284081015
