Determine the solution for joe and his expected net profit

Assignment Help Operation Management

Reference no: EM131843867

Joe Builder has located a piece of property that he plans to buy and build on and then sell to a third party. The land is currently zoned for four homes per acre, however Joe is planning to request that it be rezoned.

What Joe builds depends on the approval of the rezoning request and your analysis of his situation. With his input and your help, the decision process has been reduced to the following costs, alternatives and probabilities:

Cost of land: $2 million

Probability of rezoning: 0.60

If the land is rezoned, there will be additional costs for new roads, lighting, etc. of $1 million. This will be referred to as property improvements.

If the land is rezoned, Joe must decide whether to build a shopping center or 1,500 apartments. In either case, Joe is planning to sell the property after he has built either the shopping center or apartments. He is certain that he can sell the property, although there are probabilities associated with who would be the buyer.

If a shopping center is built, it can be sold to either an insurance company for a profit of $5 million before the cost of the land and the property improvements or to a large department store chain for a profit of $4 million before the cost of the land and property improvements are considered.

The probability of selling it to the department store chain is 70 percent so that the probability of selling it to the insurance company is 30 percent. If, instead of the shopping center, he decides to build the 1,500 apartments, the probabilities on the profits for selling them are as follows:

40 percent chance he can get a profit of $2,000 for each apartment before the cost of the land and property improvements are considered, or

60 percent chance he can get a profit of $3,000 for each apartment before the cost of the land and property improvements are considered.

If the land is not rezoned, Joe will comply with the existing zoning restrictions and simply build 600 homes on which he expects to make a profit of $4,000 on each one before the cost of the land is considered.

Using the decision tree and expected value approach, determine the best solution for Joe and his expected net profit. In providing your answer include your decision tree.

Reference no: EM131843867

Questions Cloud

How much of joes social security is included in gross : How much of Joe's social security is included in gross, taxable income for 2016?How much of Joe's social security benefits are included in gross, taxable income

Write a function that posterizes an input picture : Write a function that posterizes an input picture along a very specific process. If the red value is greater than 180, then set the pixel to red.

Important communication issues : As a future executive, what do you think are the most important communication issues you will have to face as you embark upon your career?

Remove personalities permanently : Should broadcast companies go so far as to remove personalities permanently from the air as they have for airing their personal comments

Determine the solution for joe and his expected net profit : Determine the best solution for Joe and his expected net profit. In providing your answer include your decision tree.

Employees share embarrassing information : If employees share embarrassing information or criticize their employer to people outside the organization, should this be grounds

Write a function to duplicate an image by copying pixels : Write a function to duplicate an image by copying pixels from one image into another.

Customers in a direct marketing campaign : The formula for identifying the best customers in a direct marketing campaign includes:

Is there an enforceable contract between father and son : If there is not an enforceable contract, does Junior have any other legal or equitable theory of recovery ?

User Account

All Pages