Opportunity to purchase land currently zoned residential

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Reference no: EM13845671

A real estate investor has the opportunity to purchase land currently zoned residential. If the county board approves a request to rezone the property as commercial within the next year, the investor will be able to lease the land to a large discount firm that wants to open a new store on the property. However, if the zoning change is not approved, the investor will have to sell the property at a loss. Profits (in thousands of dollars) are shown in the following payoff table:

                                                                  State of Nature

                                      Rezoning Approved             Rezoning Not Approved

Decision Alternative                S1                                              S2

Purchase,d1                          600                                       -200

Do not purchase,d2                 0                                                 0

Suppose P(s1)=0.6 and P(s2)=0.4. Using the payoff table in the problem, calculate the following:

a) minimum expected payoff

b) maximum expected payoff

c) expected value with perfect information (EVwPI)

d) expected value of perfect information(EVPI)

Reference no: EM13845671

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