Steeley Associates Versus Concord Falls

(1) request the permit

1.1 permit approved; 10% chance; $3,000,000
1.2 permit rejected; 90% chance
1.2.1 sell property; $700,000
1.2.2 construct low density building
1.2.2.1 future growth; 70% chance; $1,300,000
1.2.2.2 no future growth; 30% chance; $200,000
1.3 sue the town >> legal fee (300,000)
1.3.1 win the suit; 40% chance; $1,000,000
1.3.1.1 construct the high-density apartment; 10% chance; $3,000,000
1.3.2 linger on ; 10% chance; $200,000
1.3.3 lose the suit; 50% chance
1.3.3.1 sell property
1.3.3.1.1 growth mode; 50% chance; $900,000
1.3.3.1.2 no growth; 50% chance; $500,000
1.3.3.2 construct building
1.3.3.2.1 growth mode; 50% chance; $1,200,000
1.3.3.2.2 no growth; 50% chance; $100,000
(2) sell the property
2.1 Sell property >> 900,000
(3) construct low-density office building
3.1 future growth; 70% chance; $1,300,000
3.2. no future growth; 30% chance; $200,000
Steeley Associates Versus Concord Falls
permit approved (.10) $3,000,000

request the permit

2 sell property

1,767,000
permit rejected (.90)
construct low-density
office building
4 5

1,630,000 970,000

sell the property

1 $900,000
sue the town
($300,000)
1,767,000
6

1,930,000

with future growth (.70)

$1,300,000
construct low-density
office building
3
no future growth (.30)
970,000 $200,000

solutions to EV(noDES):
#9 650,000 = (1,200,000*.50) + (100,000*.50)
#8 700,000 = (900,000*.50) + (500,000*.50)
#7 700,000 maximum between #8 & #9
#6 1,930,000 = (4,000,000 * .4) + ([-200,000] * .1) + (700,000 * .5)
#5 970,000 = (1,300,000*.7) + (200,000 *.3)
#4 1,630,000 maximum of #5, #6 & #7
note: #6 = 1,930,000 - 300,000 (for the legal cost)
#3 970,000 = (1,300,000*.7) + (200,000*.3)
#2 1,767,000 = (3,000,000*.1) + (1,630,000*.9)
#1 1,767,000 maximum of #2, #3 and 900,000
Decision:
Based on the decision tree analysis above, the best alternative will have a payoff of $1,767,000.
Given this scenario, the team suggests that Steeley requests for a permit. If the permit is granted, Steeley should proceed with the
In case the request for permit is reject, Steeley is advised to sue the town.
If they win the case, Steeley should proceed in contructing the high-density apartment but if they lose the case, Steeley should opt
 $700,000

future growth (.70) $1,300,000

$200,000
970,000 no future growth (.30)

wins the suit (.40) $4,000,000

case lingers on (.10) $200,000 with future growth (.50) $900,000

sell the property

1,930,000
8
no future growth (.50) $500,000
lose the suit (.50) 700,000
7
with future growth (.50) $1,200,000
700,000 construct low-density
office building
9
no future growth (.50) $100,000
650,000
y should proceed with the construction of the high-density apartment.

e case, Steeley should opt to sell the property instead.

(1) go for 2 point
1.1 Win; 33% chance
1.1.1. Sugar Bowl; $7.2 M
1.2 Lose; 67% chance
1.2.1. Gator Bowl; $1.7 M
(2) go for 1 point
2.1. Overtime
2.1.1. success and tie; 98% chance
2.1.1.1 overtime
2.1.1.1.1 win; 20% chance; $7.2 M
2.1.1.1.2 loss; 80% chance; $1.7 M
2.1.2. failure; 2% chance; $1.7M