SWFT Comprehensive Vol 2020
43rd Edition
ISBN: 9780357391723
Author: Maloney
Publisher: Cengage
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A real estate investor has the opportunity to purchase land currently zoned as residential. If the county board approves a request to rezone the property as commercial within the next year, the investor will be able to lease the land to a large discount firm that wants to open a new store on the property. However, if the zoning change is not approved, the investor will have to sell the property at a loss. Profits (in thousands of dollars) are shown in the following payoff table:
State of Nature
Rezoning Approved
Rezoning Not Approved
Decision Alternative
s1
s2
Purchase, d1
600
-200
Do not purchase, d2
0
0
(a)
If the probability that the rezoning will be approved is 0.5, what decision is recommended?
Recommended Decision:
What is the expected profit? Enter your answer in dollars. For example, an answer of $200 thousands should be entered as 200,000.
$
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