Steeley Associates: Quantitative Methods
Steeley Associates Monica Beamish Quantitative Methods – MAT 540 Dr. Hesh Ansari May 3, 2013
Steeley Associates Inc., is a property development company. Steeley had purchased a house build in the mid-1800, and had been leasing it to the State University for academic office space. In 2008, the lease on the property expired and Steeley Associates, after consideration, decided to build high-density student apartments. This decision would optimize the full space site. The community was opposed to this proposal and contacted the town’s legal counsel, who informed Steeley they would reject any request for permits. After a series of meetings, Steeley proposed three suggestions on how to handle the property. The suggestions were to request the permit to build student apartments, to sell the property outright and finally request a permit for a low-density office building. Based on the data, the best decision for Steeley Associates for the property is to attempt to build the student apartments. If the permit is approved Steeley could earn $3million. The
Expected Monetary Value or EMV is $1.821 million. As indicated by the town council there is only a 10% chance of the permit being approved.
Since there is a 90% chance the permit is rejected, the next step Steeley would take is to sue the town. Legal fees would cost Steeley $300,000. The EMV does lower to $1.69 million because of the legal fee costs, and the time it takes to sue the town, instead of directly being able to start working on the project. There is a 40% chance Steeley would win the lawsuit. If the lawsuit is won, then Steeley would be awarded $1 million and gain another $3 million return for building the apartments. Due to the legal cost and time involved in the lawsuit, the EMV has lowered to $1million. This is a loss of $821,000.
There is a 10% chance the lawsuit would linger in the court system which would cost
Steeley an additional
Steeley Associates Inc., is a property development company. Steeley had purchased a house build in the mid-1800, and had been leasing it to the State University for academic office space. In 2008, the lease on the property expired and Steeley Associates, after consideration, decided to build high-density student apartments. This decision would optimize the full space site. The community was opposed to this proposal and contacted the town’s legal counsel, who informed Steeley they would reject any request for permits. After a series of meetings, Steeley proposed three suggestions on how to handle the property. The suggestions were to request the permit to build student apartments, to sell the property outright and finally request a permit for a low-density office building. Based on the data, the best decision for Steeley Associates for the property is to attempt to build the student apartments. If the permit is approved Steeley could earn $3million. The
Expected Monetary Value or EMV is $1.821 million. As indicated by the town council there is only a 10% chance of the permit being approved.
Since there is a 90% chance the permit is rejected, the next step Steeley would take is to sue the town. Legal fees would cost Steeley $300,000. The EMV does lower to $1.69 million because of the legal fee costs, and the time it takes to sue the town, instead of directly being able to start working on the project. There is a 40% chance Steeley would win the lawsuit. If the lawsuit is won, then Steeley would be awarded $1 million and gain another $3 million return for building the apartments. Due to the legal cost and time involved in the lawsuit, the EMV has lowered to $1million. This is a loss of $821,000.
There is a 10% chance the lawsuit would linger in the court system which would cost
Steeley an additional