The Greater Toronto Airports Authority is expanding again to accommodate the increasing number of flights being routed through Toronto. Plans are currently being developed to build another airport outside the city limits. Two possible locations have been identified, but a final decision on the new location is not expected to be made for another year. The WelcomeStay chain of hotels intends to build a new facility near the new airport once its site is determined. Kirsten Brown is responsible for real estate acquisitions for the company, and she faces a difficult decision about where to buy land. Currently, land values around the two possible sites for the new airport are increasing as investors speculate that property values will increase greatly in the vicinity of the new airport. The Cashflows-and-Payoff worksheet summarizes (1) the current price of each parcel of land, (2) the estimated present value of future cash flows that a hotel would generate at each site if the airport were ultimately located at the site, and (3) the present value of the amount for which the company believes it can resell each parcel if the airport is not built at the site. The company can buy one site, both sites, or neither site. Kirsten must decide which sites, if any, the company should purchase. Tasks: In the Cashflows-and-Payoffworksheet, complete the Payoff Matrix by calculating the payoff values of the shaded cells. These values should be derived from the Cash Flows Create a new worksheet titled "Decision-Heuristics” and copy the Payoff Matrixto that worksheet. Using the Payoff Matrix, formulate a decision model that shows what decision Kirsten would make if she were to use the Maximax, Maximin, and Averagingheuristics to decide which parcels of land to buy. Based on your model, answer the questions in the workbook. After interviewing some industry experts and researching municipal zoning plans, WelcomeStay now estimates that there is a 40% chance that the airport will be built at location A, and a 60% chance that it will be built at location B. Based on this new information, formulate a decision model that shows what decision should be made based on the Expected Monetary Value(EMV) decision heursitic. Based on your model, answer the questions in the workbook.

The Greater Toronto Airports Authority is expanding again to accommodate the increasing number of flights being routed through Toronto. Plans are currently being developed to build another airport outside the city limits. Two possible locations have been identified, but a final decision on the new location is not expected to be made for another year. The WelcomeStay chain of hotels intends to build a new facility near the new airport once its site is determined. Kirsten Brown is responsible for real estate acquisitions for the company, and she faces a difficult decision about where to buy land. Currently, land values around the two possible sites for the new airport are increasing as investors speculate that property values will increase greatly in the vicinity of the new airport. The Cashflows-and-Payoff worksheet summarizes (1) the current price of each parcel of land, (2) the estimated present value of future cash flows that a hotel would generate at each site if the airport were ultimately located at the site, and (3) the present value of the amount for which the company believes it can resell each parcel if the airport is not built at the site. The company can buy one site, both sites, or neither site. Kirsten must decide which sites, if any, the company should purchase. Tasks: In the Cashflows-and-Payoffworksheet, complete the Payoff Matrix by calculating the payoff values of the shaded cells. These values should be derived from the Cash Flows Create a new worksheet titled "Decision-Heuristics” and copy the Payoff Matrixto that worksheet. Using the Payoff Matrix, formulate a decision model that shows what decision Kirsten would make if she were to use the Maximax, Maximin, and Averagingheuristics to decide which parcels of land to buy. Based on your model, answer the questions in the workbook. After interviewing some industry experts and researching municipal zoning plans, WelcomeStay now estimates that there is a 40% chance that the airport will be built at location A, and a 60% chance that it will be built at location B. Based on this new information, formulate a decision model that shows what decision should be made based on the Expected Monetary Value(EMV) decision heursitic. Based on your model, answer the questions in the workbook.

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...

See similar textbooks

Scenario:

The WelcomeStay chain of hotels intends to build a new facility near the new airport once its site is determined. Kirsten Brown is responsible for real estate acquisitions for the company, and she faces a difficult decision about where to buy land.

Currently, land values around the two possible sites for the new airport are increasing as investors speculate that property values will increase greatly in the vicinity of the new airport. The Cashflows-and-Payoff worksheet summarizes (1) the current price of each parcel of land, (2) the estimated present value of future cash flows that a hotel would generate at each site if the airport were ultimately located at the site, and (3) the present value of the amount for which the company believes it can resell each parcel if the airport is not built at the site.

The company can buy one site, both sites, or neither site. Kirsten must decide which sites, if any, the company should purchase.

Tasks:

In the Cashflows-and-Payoffworksheet, complete the Payoff Matrix by calculating the payoff values of the shaded cells. These values should be derived from the Cash Flows
Create a new worksheet titled "Decision-Heuristics” and copy the Payoff Matrixto that worksheet.
Using the Payoff Matrix, formulate a decision model that shows what decision Kirsten would make if she were to use the Maximax, Maximin, and Averagingheuristics to decide which parcels of land to buy. Based on your model, answer the questions in the workbook.

After interviewing some industry experts and researching municipal zoning plans, WelcomeStay now estimates that there is a 40% chance that the airport will be built at location A, and a 60% chance that it will be built at location B.

Based on this new information, formulate a decision model that shows what decision should be made based on the Expected Monetary Value(EMV) decision heursitic. Based on your model, answer the questions in the workbook.

Cash Flows
Current purchase price
Present value of future cash flows if hotel and airport are built at this location
Present value of future sales price of parcel if the airport is not built at this location
(Note: All values are in millions of dollars.)
Payoff Matrix
Land Purchased at Location(s)
A
B
A&B
None
(Note: All values are in millions of dollars.)
Parcel of Land Near Location
A
$18
$31
$6
Airport is Built at Location
A
$13.00
-$8.00
$5.00
$0.00
B
$12
$23
$4
B
-$12.00
$11.00
-$1.00
$0.00

Expert Solution

Step by step

Solved in 5 steps with 8 images

SEE SOLUTION Check out a sample Q&A here