Interest Rate (in RM1,000,000s) Stable Decline Project Office park Office building Increase 0.5 1.7 4.5 1.5 1.9 2.5 Warehouse 1.7 1.4 1.0 Mall 0.7 2.4 3.6 Condominiums 3.2 1.5 0.6 a) Determine the best project to be develop using Hurwicz criterion with a = 0.35. b) The Place-Star has hired an economist to assign a probability to each direction interest rates may take over the next five years. The economist has determined that there is a 0.50 probability that interest rates will decline, a 0.40 probability that rates will remain stable, and a 0.10 probability that rates will increase. Construct a decision tree and recommend the best project to be develop using Expected Value (EV). i. ii. Calculate the Expected value of Perfect Information (EVPI). An economist charges RM20,000 for more information about which state of nature (interest rate) is likely to occur. Based on your answer in (ii), would Place- Star spend the money for this information? Why? ii. 55O66 NO 44 5 LO5772 O3.

Interest Rate (in RM1,000,000s) Stable Decline Project Office park Office building Increase 0.5 1.7 4.5 1.5 1.9 2.5 Warehouse 1.7 1.4 1.0 Mall 0.7 2.4 3.6 Condominiums 3.2 1.5 0.6 a) Determine the best project to be develop using Hurwicz criterion with a = 0.35. b) The Place-Star has hired an economist to assign a probability to each direction interest rates may take over the next five years. The economist has determined that there is a 0.50 probability that interest rates will decline, a 0.40 probability that rates will remain stable, and a 0.10 probability that rates will increase. Construct a decision tree and recommend the best project to be develop using Expected Value (EV). i. ii. Calculate the Expected value of Perfect Information (EVPI). An economist charges RM20,000 for more information about which state of nature (interest rate) is likely to occur. Based on your answer in (ii), would Place- Star spend the money for this information? Why? ii. 55O66 NO 44 5 LO5772 O3.

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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Question

Help me solve all the questions

Interest Rate (in RM1,000,000s)
Stable
Decline
Project
Office park
Office building
Increase
0.5
1.7
4.5
1.5
1.9
2.5
Warehouse
1.7
1.4
1.0
Mall
0.7
2.4
3.6
Condominiums
3.2
1.5
0.6
a) Determine the best project to be develop using Hurwicz criterion with a = 0.35.
b) The Place-Star has hired an economist to assign a probability to each direction
interest rates may take over the next five years. The economist has determined that
there is a 0.50 probability that interest rates will decline, a 0.40 probability that rates
will remain stable, and a 0.10 probability that rates will increase.
Construct a decision tree and recommend the best project to be develop using
Expected Value (EV).
i.
ii.
Calculate the Expected value of Perfect Information (EVPI).
An economist charges RM20,000 for more information about which state of
nature (interest rate) is likely to occur. Based on your answer in (ii), would Place-
Star spend the money for this information? Why?
ii.
|이디-|이3

Place-Star, a real estate development firm, is considering several alternative
development projects. These include building and leasing an office park, purchasing a
parcel of land and building, an office building to rent, buying and leasing a warehouse,
building a strip mall, and building and selling condominiums. The financial success of
these projects depends on interest rate movement in the next 5 years. The various
development projects and their 5-year financial return (in RM1,000,000s) given that
interest rate will decline, remain stable, or increase, are shown in the following payoff
table:
1

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