The recent dramatic increase of the prime interest rate affected the company's plans. ETO Development Corporation managers are thinking about hiring Mimico Research Group (MRG) to conduct a market research. The name Mimico is derived from the Ojibwe word that means pigeon . Then, MRG would come up with either a favorable report predicting strong demand, or an unfavorable report predicting weak demand on the real estate market. It is known that in 90%90% of cases when strong demand took place, MRG had predicted it correctly. It is also known that in 88%88% of cases when weak demand occurred, MRG had predicted it correctly. MRG specialists need a month to complete their analysis, and they have to use expensive software, supercomputers, and hire additional computer and logistics analysts.

(d) Suppose that you need to construct a revised decision tree. First, fill in the following revised probability tables for the favorable and unfavorable reports.

Round joint probability values, P(Fav) = P(Favorable report), P(Unfav) = P(Unfavorable report), and the posterior probability values to 4 decimals places.

Probability Revisions given a Favorable Report

State of Nature	Prior Probability	Conditional Probability P(Fav/State of Nature)(Fav/State of Nature)	Joint Probability	Posterior Probability P(State of Nature/Fav)(State of Nature/Fav)
Strong	0.630.63
Weak	0.370.37
		P((Fav)=)=	1.00001.0000

Probability Revisions given an Unfavorable Report

State of Nature	Prior Probability	Conditional ProbabilityP(Unfav/State of Nature)(Unfav/State of Nature)	Joint Probability	Posterior Probability P(State of Nature/Unfav)(State of Nature/Unfav)
Strong	0.630.63
Weak	0.370.37
		P((Unfav)=)=	1.00001.0000

(e) Now you start constructing the revised decision tree. Select the correct sketch of the leftmost part of the revised decision tree based on the information above.

• P(Fav)=0.6114=0.6114 , P(Unfav)=0.3886=0.3886
• P(Fav)=0.604=0.604 , P(Unfav)=0.4012=0.4012
• P(Fav)=0.9274=0.9274 , P(Unfav)=0.8379=0.8379
• P(Hire)=0.9=0.9 , P(Do not hire)=0.88=0.88
• None of the above.

(f) You continue to sketch the revised decision tree. Please select the correct sketch of the fragment incorporating the information from MRG.

• None of the above.

where the probabilities are

Select an answer P(Fav)=0.3886 , P(Strong|Fav)=0.1621 , P(Weak|Fav)=0.8379 P(Srtong)=0.37 , P(Weak)=0.63 , P(Strong|Fav)=0.567 , P(Weak|Fav)=0.0444 , P(Strong|Unfav)=0.063 , P(Weak|Unfav)=0.3256 P(Fav)=0.6114 , P(Strong|Fav)=0.9274 , P(Weak|Fav)=0.0726 None of the above.

If the analysts of Mimico Research Group provide an unfavorable report, how then would the ETO specialists estimate the probability of weak demand? Keep 4 decimal places in the following answer.

P(Weak|Unfav) =

Suppose that the unfavorable report is given, how then would the ETO specialists estimate the probability of strong demand? Keep 4 decimal places in the following answer.

P(Strong|Unfav) =

(g) Construct the revised decision tree and answer the following questions.

Round all EMV answers to 2 decimal places.

• In case of favorable report,

EMV(High-Rise Condos) == (in $$millions)

EMV(Low-Rise Condos) == (in $$millions)

EMV(Townhouse Complex) == (in $$millions)

• In case of unfavorable report,

EMV(High-Rise Condos) == (in $$millions)

EMV(Low-Rise Condos) == (in $$millions)

EMV(Townhouse Complex) == (in $$millions)

• In the revised decision tree, there are the expected monetary values

EMV(Hire) == (in $$millions)

EMV(Do not hire) == (in $$millions)

(h) Based on the revised decision tree formulate the optimal decision policy.

Note that in each answer cell below you have to use the scroll-down menu to select the correct option. If you recommend not hiring MRG, please select N/A in case of favorable/unfavorable report.

Select an answer Hire Do not hire Mimico Research Group. If their report is favorable, then choose the Select an answer Townhouse Complex N/A Low-Rise Condos High-Rise Condos project. If the report is unfavorable, then go ahead with the Select an answer High-Rise Condos N/A Low-Rise Condos Townhouse Complex project.

(i) How much would ETO Development Corporation be willing to pay at most for the information about future economic conditions?

If you recommend not hiring MRG, please enter zero in the answer cell.

Keep 2 decimal places in the following answer.

ETO can pay up to (in $$ millions)