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The lease of Theme Park, Ic., is about to expire. Management must decide whether to renew the lease for another 10 years or to relocate near the site of a proposed motel. The town planning board is currently debating the merits of granting approval to the motel. A consultant has estimated the net present value of Theme Park's two alternatives under each state of nature as shown below. Suppose that the management of Theme Park, Ic., has decided that there is a 0.40 probability that the motel's application will be approved. Motel Approved $ 600,000 2,500,000 Motel Options Renew Rejected $4,500,000 300,000 Relocate a-1. If management uses maximum expected monetary value as the decision criterion, calculate expected monetary value for the alternatives "Renew" and "Relocate".

The lease of Theme Park, Ic., is about to expire. Management must decide whether to renew the lease for another 10 years or to relocate near the site of a proposed motel. The town planning board is currently debating the merits of granting approval to the motel. A consultant has estimated the net present value of Theme Park's two alternatives under each state of nature as shown below. Suppose that the management of Theme Park, Ic., has decided that there is a 0.40 probability that the motel's application will be approved. Motel Approved $ 600,000 2,500,000 Motel Options Renew Rejected $4,500,000 300,000 Relocate a-1. If management uses maximum expected monetary value as the decision criterion, calculate expected monetary value for the alternatives "Renew" and "Relocate".

Practical Management Science
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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The lease of Theme Park, Inc., is about to expire. Management must decide whether to renew the lease for another 10 years or to relocate near the site of a proposed motel. The town planning board is currently debating the merits of granting approval to the motel. A consultant has estimated the net present value of Theme Park's two alternatives under each state of nature as shown below. Suppose that the management of Theme Park, Inc., has decided that there is a 0.40 probability that the motelľ's application will be approved. Motel Motel Options Rejected $4,500,000 300,000 Approved Renew $ 600,000 Relocate 2,500,000 а-1. If management uses maximum expected monetary value as the decision criterion, calculate expected monetary value for the alternatives "Renew" and "Relocate".
Transcribed Image Text:The lease of Theme Park, Inc., is about to expire. Management must decide whether to renew the lease for another 10 years or to relocate near the site of a proposed motel. The town planning board is currently debating the merits of granting approval to the motel. A consultant has estimated the net present value of Theme Park's two alternatives under each state of nature as shown below. Suppose that the management of Theme Park, Inc., has decided that there is a 0.40 probability that the motelľ's application will be approved. Motel Motel Options Rejected $4,500,000 300,000 Approved Renew $ 600,000 Relocate 2,500,000 а-1. If management uses maximum expected monetary value as the decision criterion, calculate expected monetary value for the alternatives "Renew" and "Relocate".
b. If management has been offered the option of a temporary lease while the town planning board considers the motel's application, would you advise management to sign the lease? The lease will cost $40,000. X Answer is not complete. because the cost than EVPI Yes less is of
Transcribed Image Text:b. If management has been offered the option of a temporary lease while the town planning board considers the motel's application, would you advise management to sign the lease? The lease will cost $40,000. X Answer is not complete. because the cost than EVPI Yes less is of
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The amount that a person would be ready to pay to obtain perfect information is known as the expected value of perfect information in decision theory. It is the variation between expected payout under certainty and expected financial value. Expected opportunity loss is also equivalent to the EVPI.

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