1. Verify Dante’s profit projections shown at the ending branches of the decision tree by calculating the payoffs of $2,650,000, $650,000, and $1,150,000 for first three outcomes? I provided belwo how the result of the first two outcomes where they came from. But I don't where $1,150,000 came from? I need your help verifying and Correcting the calculation for the three payoffs. Can please show me who you got that step by step and where it came from?IF Demand is HighEstimated income that results from building the complex=$5,000,000The cost of preparing the bid is $200,000Amount that company have to pay if it wins the bid = $2,000,000The cost of this study = $150,000So, the profit projection at the ending branch of nods 8=5,000,000-200,000-2,000,000-150,000=$2,650,000IF Demand is Moderate:Estimated income that results from building the complex=$3,000,000The cost of preparing the bid is $200,000Amount that company have to pay if it wins the bid = $2,000,000The cost of this study = $150,000So, the profit projection at the ending branch of nods 8=3,000,000-200,000-2,000,000-150,000=$650,000 Dante Development Corporation is considering bidding on a contract for a new office building complex.The following figure shows the decision tree prepared by one of Dante's analysts. At node 1, thecompany must decide whether to bid on the contract. The cost of preparing the bid is $200,000. Theupper branch from node 2 shows that the company has a 0.8 probability of winning the contract if itsubmits a bid. If the company wins the bid, it will have to pay $2 million to become a partner in theproject. Node 3 shows that the company will then consider doing a market research study to forecastdemand for the office units prior to beginning construction. The cost of this study is $150,000. Node 4 isa chance node showing the possible outcomes of the market research study.Nodes 5, 6, and 7 are similar in that they are the decision nodes for Dante to cither build the officecomplex or sell the rights in the project to another developer. The decision to build the complex willresult in an income of $5 million if demand is high and $3 million if demand is moderate. If Dantechooses to sell its rights in the project to another developer, income from the sale is estimated to be $1.5million. The probabilities shown at nodes 4, 8, and 9 are based on the projected outcomes of the marketrescarch study.Prefit ($100s)High Demand0.852,650Build ComplesForecast High0.6Moderate Demand0.15650Sell1,150Market ResearchHigh Demand2,650Build Complex0.225Moderate Demand0.775Forecast Moderate6500.4Win ContractSell1,1500.8High Demand2,800Build Complex0.6BidNo Market ResearchModerate Demand800Sell1,300Lose Contract-2000.2Do Not Bid1. Verify Dante's profit projections shown at the ending branches of the decision tree by calculatingthe payoffs of $2,650,000, $650,000, and $1,150,000 for first three outcomes.2. What is the optimal decision strategy for Dante, and what is the expected profit for this projec?3. What would the cost of the market rescarch study have to be before Dante would changeits decision about the market research study?

From the given text of the problem -Revenue from sale of building is = $1.5 million - Cost of…

Answered: Can please show me who you got that…

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter26: Capital Budgeting (capbud)

Section: Chapter Questions

Problem 5R

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1. Verify Dante’s profit projections shown at the ending branches of the decision tree by calculating the payoffs of $2,650,000, $650,000, and $1,150,000 for first three outcomes? I provided belwo how the result of the first two outcomes where they came from. But I don't where $1,150,000 came from? I need your help verifying and Correcting the calculation for the three payoffs. Can please show me who you got that step by step and where it came from?

IF Demand is High

Estimated income that results from building the complex=$5,000,000
The cost of preparing the bid is $200,000
Amount that company have to pay if it wins the bid = $2,000,000
The cost of this study = $150,000

So, the profit projection at the ending branch of nods 8

=5,000,000-200,000-2,000,000-150,000

=$2,650,000

IF Demand is Moderate:

Estimated income that results from building the complex=$3,000,000
The cost of preparing the bid is $200,000
Amount that company have to pay if it wins the bid = $2,000,000
The cost of this study = $150,000

So, the profit projection at the ending branch of nods 8

=3,000,000-200,000-2,000,000-150,000

=$650,000

Dante Development Corporation is considering bidding on a contract for a new office building complex.
The following figure shows the decision tree prepared by one of Dante's analysts. At node 1, the
company must decide whether to bid on the contract. The cost of preparing the bid is $200,000. The
upper branch from node 2 shows that the company has a 0.8 probability of winning the contract if it
submits a bid. If the company wins the bid, it will have to pay $2 million to become a partner in the
project. Node 3 shows that the company will then consider doing a market research study to forecast
demand for the office units prior to beginning construction. The cost of this study is $150,000. Node 4 is
a chance node showing the possible outcomes of the market research study.
Nodes 5, 6, and 7 are similar in that they are the decision nodes for Dante to cither build the office
complex or sell the rights in the project to another developer. The decision to build the complex will
result in an income of $5 million if demand is high and $3 million if demand is moderate. If Dante
chooses to sell its rights in the project to another developer, income from the sale is estimated to be $1.5
million. The probabilities shown at nodes 4, 8, and 9 are based on the projected outcomes of the market
rescarch study.
Prefit ($100s)
High Demand
0.85
2,650
Build Comples
Forecast High
0.6
Moderate Demand
0.15
650
Sell
1,150
Market Research
High Demand
2,650
Build Complex
0.225
Moderate Demand
0.775
Forecast Moderate
650
0.4
Win Contract
Sell
1,150
0.8
High Demand
2,800
Build Complex
0.6
Bid
No Market Research
Moderate Demand
800
Sell
1,300
Lose Contract
-200
0.2
Do Not Bid
1. Verify Dante's profit projections shown at the ending branches of the decision tree by calculating
the payoffs of $2,650,000, $650,000, and $1,150,000 for first three outcomes.
2. What is the optimal decision strategy for Dante, and what is the expected profit for this projec?
3. What would the cost of the market rescarch study have to be before Dante would change
its decision about the market research study?

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