QuestionA local real estate investor in Kingston is considering three investments: a motel, a restaurant, or a theatre. Profits from the motel or restaurant will be affected by the availability of gasoline and the number of tourist; Profits from the theatre will be relatively stable under any conditions. The following payoff table shows the profit or loss that could result from each investment: Real Estate Investor Payoff Table Payoffs are Profits States of Nature (Gasoline Avaliability)Decision AlternativesShortageStable SupplySurplusMotel$8,000$15,000$22,000Restaurant$2,000$8000$6,000Theater$6,000$6,000$5,000 If the probability of a shortage of gasoline is 25%, the probability of a stable supply of gasoline is 45% and the probability of a surplus of gasoline is 30%. Using the EMV, What option should the real estate investor choose and what is that optimal expected value?What is the most the real estate investor would be willing to pay for additional information. Use Minimum expected regret (Minimum EOL)Use the Alternative method to verify EVPI

Therefore, As per the Expected monetary value (EMV), The investment can be done in Motel as it has…

Answered: A local real estate investor in…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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A local real estate investor in Kingston is considering three investments: a motel, a restaurant, or a theatre. Profits from the motel or restaurant will be affected by the availability of gasoline and the number of tourist; Profits from the theatre will be relatively stable under any conditions. The following payoff table shows the profit or loss that could result from each investment:

Real Estate Investor Payoff Table

	Payoffs are Profits
	States of Nature (Gasoline Avaliability)
Decision Alternatives	Shortage	Stable Supply	Surplus
Motel	$8,000	$15,000	$22,000
Restaurant	$2,000	$8000	$6,000
Theater	$6,000	$6,000	$5,000

If the probability of a shortage of gasoline is 25%, the probability of a stable supply of gasoline is 45% and the probability of a surplus of gasoline is 30%. Using the EMV, What option should the real estate investor choose and what is that optimal expected value?
What is the most the real estate investor would be willing to pay for additional information. Use Minimum expected regret (Minimum EOL)
Use the Alternative method to verify EVPI

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