Task 1: A piece of real estate is currently designated for residential use and is offered for sale and Jalalapur Housing Company ( JHC ) is presented with the opportunity to purchase it. If the local council approves a plan to recategorize the property as commercial within the next year, then JHC will be able to lease the land to a large firm that wants to open a new store on the property. However, if the plan is not approved, JHC will have to sell the property at a loss. Profits (in 000's of 's) are shown in the following payoff table: (a) If the probability that the recategorization plan will be approved is 0.65 , what decision is recommended and what is the expected profit? What is the Expected Value of Perfect Information (EVPI)? (b) JHC can purchase an option to buy the land later at an extra cost. Under the option, JHC maintains the rights to purchase the land anytime during the next three months while waiting to learn more about possible resistance to the recategorization proposal from local residents. The recategorizations are classified as: H= High resistance to recategorization L= Low resistance to recategorization The conditional probabilities are as follows: P(Hs1)=0.72P(Ls1)=0.28P(Hs2)=0.35P(Ls2)=0.65 What are the values for P(H) and P(L) ? Determine the optimal decision strategy if the investor uses the option period to learn more about the resistance from local residents before making the purchase decision (c) If the option will cost JHC an additional 35,000, should they purchase the option? Why or why not? What is the maximum that JHC should be willing to pay for the option? Discuss your answer. (d) Determine the value for Efficiency of Sample Information (E). What conclusion do you arrive at based on the E value that your obtained? Task 1: A piece of real estate is currently designated for residential use and is offered for sale and Jalalapur Housing Company ( JHC ) is presented with the opportunity to purchase it. If the local council approves a plan to recategorize the property as commercial within the next year, then JHC will be able to lease the land to a large firm that wants to open a new store on the property. However, if the plan is not approved, JHC will have to sell the property at a loss. Profits (in 000's of 's) are shown in the following payoff table: (a) If the probability that the recategorization plan will be approved is 0.65 , what decision is recommended and what is the expected profit? What is the Expected Value of Perfect Information (EVPI)? (b) JHC can purchase an option to buy the land later at an extra cost. Under the option, JHC maintains the rights to purchase the land anytime during the next three months while waiting to learn more about possible resistance to the recategorization proposal from local residents. The recategorizations are classified as: H= High resistance to recategorization L= Low resistance to recategorization The conditional probabilities are as follows: P(Hs1)=0.72P(Ls1)=0.28P(Hs2)=0.35P(Ls2)=0.65 What are the values for P(H) and P(L) ? Determine the optimal decision strategy if the investor uses the option period to learn more about the resistance from local residents before making the purchase decision (c) If the option will cost JHC an additional 35,000, should they purchase the option? Why or why not? What is the maximum that JHC should be willing to pay for the option? Discuss your answer. (d) Determine the value for Efficiency of Sample Information (E). What conclusion do you arrive at based on the E value that your obtained