Strategic Management: Townhouse Development\ McBeth Townhouses Inc., of Atlanta, Georgia, recently purchased land near the Gulf of Mexico and is weighing different sizes for its townhouse development plan. After some deliberation, only two sizes are being considered: small and large. An uncertain economic outlook combined with an unclear picture of interest rates make it difficult to forecast demand with a high degree of confidence. McBeth's management team realizes that building a large townhouse complex followed by low demand could be very costly to the company. However, a small development followed by large demand would sacrifice significant potential profits. Analysts at McBeth reason that a low demand scenario is about

70%

likely. A high demand scenario is

30%

likely.\ For the small complex, net profits will be

$1

million in the low demand scenario and

$3

million in the high demand scenario. For the large complex, net profits will be

$2

million in the low demand scenario and

$6

million in the high demand scenario.\ 1.1 What is the expected profit of the small complex plan?\ 1.2 What is the expected profit of the large complex plan?\ Note: profit information is ready given in the problem. It does not have to be computed before making expected value calculations.

1. Strategic Management: Townhouse Development McBeth Townhouses Inc., of Atlanta, Georgia, recently purchased land near the Gulf of Mexico and is weighing different sizes for its townhouse development plan. After some deliberation, only two sizes are being considered: small and large. An uncertain economic outlook combined with an unclear picture of interest rates make it difficult to forecast demand with a high degree of confidence. McBeth's management team realizes that building a large townhouse complex followed by low demand could be very costly to the company. However, a small development followed by large demand would sacrifice significant potential profits. Analysts at McBeth reason that a low demand scenario is about 70% likely. A high demand scenario is 30% likely. For the small complex, net profits will be $1 million in the low demand scenario and $3 million in the high demand scenario. For the large complex, net profits will be $2 million in the low demand scenario and $6 million in the high demand scenario. 1.1 What is the expected profit of the small complex plan? 1.2 What is the expected profit of the large complex plan? Note: profit information is ready given in the problem. It does not have to be computed before making expected value calculations