Please answer all questions. Make sure you either highlight or circle the answer

Question

Please answer all questions. Make sure you either highlight or circle the answers. For the question, a and b the drop-down answers choices are purchase or not to purchase please answer that. Question C drop-down choices are yes or no. Please choose the correct drop-down answer. The last person had c wrong and they have it as 330,000 which is wrong. Please show your work. I really need this quest answered.

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 Purchase, di Do not purchase, dz (a) If the probability that the rezoning will be approved is 0.5, what decision is recommended? S1 S2 570 -240 Recommended Decision:- Select your answer-v What is the expected profit?

Explanation / Answer

a) Recommended decision = Purchase the property

Expected profit = 0.5*$500 + 0.5*-$170 = $165, 000

b)

In case of high resistance,

Payoff for d1 = 0.15*$550 + 0.85*-$170 = -$62, 000

Payoff for d2 = 0

Hence, Do not purchase

In case of low resistance

Payoff for d1 = 0.88*$550 + 0.12*-$170 = $463, 600

Payoff for d2= 0

Hence, purchase the item

c)

Expected profit from option = 0.53*$0 + 0.47*$463, 600 = $217, 892

EVSI = $217, 892 - $165, 000 = $52, 892

Option should be purchased as it improves the value by $52, 892.

d)

Maximum amount that the investor should be willing to pay for the option = $52,892

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