Answer for the Oceanview Property
Oceanview ought to maximize its wealth through the decision it will make, or reduce its losses.
Ocean view prepared a “decision tree” analysis to help them come up with decision problem. Based on the preliminary study, the company has four possible outcomes, depending on the decisions they will make: -
- There is a 20% possibility that it will be the highest bid and acquire the property. In this case, Oceanview will wait for 6 months to decide. On the other hand, - There is 80% probability that Oceanview will not be the highest bidder and they will not get the property in this case where their deposit will be refunded. - There is 30% probability that there will be referendum for a zoning change being approved. This will result that the 500,000$ will be considered as a down payment for the property. However, - There is 70% risk that referendum for a zoning change will be rejected, and Glenn prefers to withdraw from continuing the project and lose the 500,000$ deposit.
The second tree shows if Oceanview decides to go for the market research survey, there will be two options as per the following detail:-
1) Prediction of zoning change approved: 0.41% a. The zoning change is approved by the voters 90% b. The zoning change is rejected by the voters 20% • The profit from this scenario is 2,000,000 minus 15,000 cost of the market research survey.(1,985,000$)
2) Prediction of zoning change will not be approved 0.59 % a. The zoning change is approved by the voters 10% b. The zoning change is rejected by the voters 80% • The loss from this scenario is 15,000 costs of the market research and 500,000$the deposit of the property bid(-515000$)
➢ Recommendation:-
My recommendation to Oceanview in case of absence the market research survey is not to proceed with submitting the bid at all because of the following risks:-
• They should not build their decision depending on unrealistic input,
Ocean view prepared a “decision tree” analysis to help them come up with decision problem. Based on the preliminary study, the company has four possible outcomes, depending on the decisions they will make: -
- There is a 20% possibility that it will be the highest bid and acquire the property. In this case, Oceanview will wait for 6 months to decide. On the other hand, - There is 80% probability that Oceanview will not be the highest bidder and they will not get the property in this case where their deposit will be refunded. - There is 30% probability that there will be referendum for a zoning change being approved. This will result that the 500,000$ will be considered as a down payment for the property. However, - There is 70% risk that referendum for a zoning change will be rejected, and Glenn prefers to withdraw from continuing the project and lose the 500,000$ deposit.
The second tree shows if Oceanview decides to go for the market research survey, there will be two options as per the following detail:-
1) Prediction of zoning change approved: 0.41% a. The zoning change is approved by the voters 90% b. The zoning change is rejected by the voters 20% • The profit from this scenario is 2,000,000 minus 15,000 cost of the market research survey.(1,985,000$)
2) Prediction of zoning change will not be approved 0.59 % a. The zoning change is approved by the voters 10% b. The zoning change is rejected by the voters 80% • The loss from this scenario is 15,000 costs of the market research and 500,000$the deposit of the property bid(-515000$)
➢ Recommendation:-
My recommendation to Oceanview in case of absence the market research survey is not to proceed with submitting the bid at all because of the following risks:-
• They should not build their decision depending on unrealistic input,