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    This document presents a decision tree for a housing developer considering whether to conduct market research before selecting one of three housing projects - Avina, Exora, or Eugina. The developer must choose between conducting research at a cost of RM1,700 or not conducting research. Not conducting research leads directly to selecting project Exora for maximum expected value of RM1.5 million. Conducting research could reveal either a high or low housing demand scenario. The value of perfect information is RM1,200, as market research costs RM1,700 but could increase expected value by RM1,200 at most.

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    QUESTION 5

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    This document presents a decision tree for a housing developer considering whether to conduct market research before selecting one of three housing projects - Avina, Exora, or Eugina. The developer must choose between conducting research at a cost of RM1,700 or not conducting research. Not conducting research leads directly to selecting project Exora for maximum expected value of RM1.5 million. Conducting research could reveal either a high or low housing demand scenario. The value of perfect information is RM1,200, as market research costs RM1,700 but could increase expected value by RM1,200 at most.

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    12 views2 pages

    Question 5

    Uploaded by

    akimtaro
    This document presents a decision tree for a housing developer considering whether to conduct market research before selecting one of three housing projects - Avina, Exora, or Eugina. The developer must choose between conducting research at a cost of RM1,700 or not conducting research. Not conducting research leads directly to selecting project Exora for maximum expected value of RM1.5 million. Conducting research could reveal either a high or low housing demand scenario. The value of perfect information is RM1,200, as market research costs RM1,700 but could increase expected value by RM1,200 at most.

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    Attribution Non-Commercial (BY-NC)
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    of 2

    CONFIDENTIAL 2 CS/OCT 2007/QMT337

    QUESTION 5
    Payoffs
    a)
    First Second High Demand (0.8) 12000
    Decision Point Decision Point 11000

    2
    Low Demand (0.2) 7000

    Avina

    13200
    High Demand (0.8) 15000
    Exora 13200
    Survey (0.7)
    Good Economy 3
    Eugina
    Low Demand (0.2) 6000

    9600 High Demand (0.8) 10000

    11700 – 10000 = 1700 4


    1 Low Demand (0.2) 8000

    Conduct
    market
    High Demand (0.1) 12000
    research

    7500
    5
    Survey (0.3) Low Demand (0.9) 7000
    Poor Economy Avina
    10500

    8200

    High Demand (0.1) 15000


    Exora
    6900
    Eugina 6
    Do not
    Low Demand (0.9) 6000
    conduct
    market
    research
    High Demand (0.1) 10000
    8200
    7 Low Demand (0.9) 8000

    High Demand (0.5) 12000

    9500

    8
    Avina Low Demand (0.5) 7000
    10500

    Exora
    High Demand (0.5) 15000
    10500
    Structure: 3m Eugina 9
    Payoffs: 1m
    Probability:3m Low Demand (0.5) 6000
    EMV: 5m 9000
    10 High Demand (0.5) 10000
    (10 marks)
    Low Demand (0.5) 8000

    ©HakCipta Universiti Teknologi MARA CONFIDENTIAL


    CONFIDENTIAL 3 CS/OCT 2007/QMT337

    b) Do not conduct market research. 1.5m


    The housing developer should launch on project Exora. 1.5m

    a) EVSI = 11700 – 105 00 = RM1200


    Maximum amount to pay for market research is RM1200 2m

    ©HakCipta Universiti Teknologi MARA CONFIDENTIAL

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