You are a real estate developer and are trying to determine the EMV of your net commission from a sales call to a potential purchaser.

Assume that yourtransportation cost is $1.45 per mile

Assume that the sales call is70 miles round trip

Assume that yourtransportation time is 2.25 minutes per mile

Assume that thevalue of your time for transportation is $55.00 per hour

Assume that it willtake 3 hours to meet with the potential purchaser

Assume that thevalue of your time for the customer meeting is $150.00 per hour

Assume that youwill have a 19% chanceof a successful sales call (sales call #1)

If sales call #1 is successful,

you will sell a house valued at $275,000 with likelihood = 55%

you will sell a house valued at $300,000 with likelihood = 35%

you will sell a house valued at $425,000 with likelihood = 10%

Assume that yourcommission will be 2.5% of the value of the house if sales call #1 is successful.

a) What is the expected cost (time and transportation) of sales call #1?

b) Without assuming that the sales call will be successful (that is, it may or may not be a success), what is the expected gross commission of sales call #1 (do not net out the expected costs)?

Suppose you have a second possible sales call (sales call #2). Assume that the expected cost remains the same and that the commission rate remains 2.5%, but that the following information is the different information for sales call #2.

Assume that youwill have a 12% chanceof a successful sales call (sales call #2)

If sales call #2 is successful,

you will sell a house valued at $285,000 with likelihood = 45%

you will sell a house valued at $320,000 with likelihood = 25%

you will sell a house valued at $355,000 with likelihood = 30%

c)Assuming that your sales call is successful, look at the worst possible outcome for each decision and choose the decision that has the best (or least bad) of these.