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    Bill Holiday and Mark

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    saurabh449
    Bill Holliday is considering building either a quadplex or duplex rental property but is unsure about the rental market conditions. He could gather additional market research at a cost of $3,000, which could increase or decrease the estimated probability of a favorable market. Bill needs advice on whether to build one of the properties, conduct additional research first, or take no action at all given the costs and potential profits or losses involved with each option.

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    Bill Holiday and Mark

    Uploaded by

    saurabh449
    2K views3 pages
    Bill Holliday is considering building either a quadplex or duplex rental property but is unsure about the rental market conditions. He could gather additional market research at a cost of $3,000, which could increase or decrease the estimated probability of a favorable market. Bill needs advice on whether to build one of the properties, conduct additional research first, or take no action at all given the costs and potential profits or losses involved with each option.

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    Bill Holliday is considering building either a quadplex or duplex rental property but is unsure about the rental market conditions. He could gather additional market research at a cost of $3,000, which could increase or decrease the estimated probability of a favorable market. Bill needs advice on whether to build one of the properties, conduct additional research first, or take no action at all given the costs and potential profits or losses involved with each option.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    2K views3 pages

    Bill Holiday and Mark

    Uploaded by

    saurabh449
    Bill Holliday is considering building either a quadplex or duplex rental property but is unsure about the rental market conditions. He could gather additional market research at a cost of $3,000, which could increase or decrease the estimated probability of a favorable market. Bill needs advice on whether to build one of the properties, conduct additional research first, or take no action at all given the costs and potential profits or losses involved with each option.

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    © All Rights Reserved
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    At a glance
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    Bill Holliday faces a decision about whether to build an apartment complex and needs to consider the risks and potential profits of different options. He must decide whether to gather more information or proceed without it.

    Bill Holliday is unsure whether to build a quadplex, duplex, gather additional information about the rental market, or do nothing. The information could cost $3,000 and have different probabilities of being favorable or unfavorable.

    The passage analyzes the expected monetary values of Bill's different options and recommends that he conduct additional market research.

    Bill Holliday is not sure what she should do. He can either build a quadplex (i.e.

    , a building with
    four apartments), build a duplex, gather additional information, or simply do nothing. If he
    gathers additional information, the results could be either favorable or unfavorable, but it
    would cost him $3,000 to gather the information. Bill believes that there is a 5050chance that
    the information will be favorable. If the Rental market is favorable, Bill will earn $15,000 With
    the quadplex or $5,000 with the duplex. Bill doesnt have the financial resources to do both.
    With an unfavorable rental market, however, Bill could Lose $20,000 with the quadplex or
    $10,000 with the duplex. Without gathering additional information, Bill estimates that the
    probability of a favorable rental market is 0.7. A favorable report from the study would
    increase the probability of a favorable rental market to 0.9. Furthermore, an unfavorable
    report from the additional information would decrease the probability of a favorable rental
    market to 0.4. Of course, Bill could forget all of these numbers and do nothing. What is your
    advice to Bill?

    Answer :
    EMV (Rude 2) = 15000 (0.7) + (-20000) 0.3 = 4500
    EMV (Rude 3) = 5000 (0.7) + (-10000) 0.3 = 500
    EMV (Rude 4) = 12000 (0.9) + (-23000) 0.1 = 8500
    EMV (Rude 5) = 2000 (0.9) + (-13000) 0.3 = -2100
    EMV (Rude 6) = 12000 (0.6) + (-23000) 0.4 = -2000
    EMV (Rude 7) = 2000 (0.6) + (-13000) 0.4 = -4000
    EMV (Rude 1) = 8500 (0.5) + (-3000) 0.5 = 2750
    (0.7) Market
    $15000
    Favorable
    2
    (Quadplex)
    (0.3) Market
    $-12000
    Unfavorable

    (0.7) Market
    $5000
    B Favorable
    (Do Not Conduct) 3
    (Duplex)
    (0.3) Market
    $-10000
    Unfavorable

    No Facility $0

    (0.9) Market
    $12000
    Favorable
    4
    (Quadplex)
    (0.1) Market
    $-10000
    Unfavorable

    (0.9) Market
    $2000
    A Favorable
    C
    (Conduct Study) 5
    (Duplex)
    (0.1) Market
    $-13000
    Unfavorable

    No Facility $3000

    (0.6) Market
    $12000
    Favorable
    6
    (Quadplex)
    (0.4) Market
    $-23000
    Unfavorable

    (0.6) Market
    $12000
    Favorable
    D
    7
    (Duplex)
    (0.4) Market
    $-13000
    Unfavorable

    No Facility $-3000
    Mark Martinko has been a class A racquetball player for the past five years, and one of his biggest
    goals is to own and operate a racquetball facility. Unfortunately, Marks thinks that the chance
    of a successful racquetball facility is only 30%. Marks lawyer has recommended that he
    employ one of the local marketing research groups to conduct a survey concerning the success
    or failure of a racquetball facility. There is A 0.8 probability that the research will be favorable
    Given a successful racquetball facility. In addition, There is a 0.7 probability that the research
    will be unfavorable given an unsuccessful facility. Compute Revised probabilities of a successful
    racquetball facility given a favorable and given an unfavorable survey.

    Answer :

    P (SF) = 0.3
    P (RFSF) = 0.8
    P (RUUF) = 0.8

    P (UF) = 1 - P (SF) = 0.7


    P (RUSF) = 1 - P (RFSF) = 0.2
    P (RFUF) = 1 - P (PUUF) = 0.3

    P ( RF|SF ) P( SF)
    P (SFRF) =
    P ( RF|SF ) P ( SF )+ P ( RU |UF ) P(UF )
    0.8 0.3
    =
    0.8 0.3+0.3 0.7
    = 0.53

    Conditional Poskrior
    State of Name Prior Probability Joint Probability
    Probability Probability
    Favorable Market 0.8 0.3 0.24 0.53
    Non Favorable
    0.3 0.7 0.21 0.47
    Market
    Total 0.45

    So the probabiity of a success full driving range given a favorably research 0.53 and 0.47

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