A construction company must decide on the size of the shopping mall, i.e. Large, Medium or Small, that has to be constructed in their acquired plot in the sub-urban area of Seattle. Due to the market conditions, the number of visitors to the mall will be High, Moderate, or Low. The level of response and the size of the mall will decide the return of investment from the mall. The profit payoff table for management (in millions of dollars) after 5 years is provided below.
The probabilities are P(High) = 0.35, P(Moderate) = 0.40, and P(Low) = 0.25. a. Use a decision tree to recommend a decision.
b. Use EVPI to determine whether the construction company should attempt to obtain a better estimate of the response.
Definitions:
Competitive Advantage
The unique attributes or capabilities that allow an organization to outperform its competitors, resulting in greater sales, margins, and customer loyalty.
Economic Responsibility
The obligation of an individual, organization, or government to optimize the economic impact of its decisions on stakeholders and society at large.
Creditors
Individuals or entities to whom money is owed by a debtor or borrower.
Social Responsibility Pyramid
A framework used to depict how a business should prioritize its responsibilities, from basic economic functions to ethical duties.
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