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Determine the evpi by any method

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A company wanting to build a hotel in downtown St. John's needs to buy two ad- jacent properties. The appraised values for Properties 1 and 2 are $1,000,000, and $2,600,000 respectively. They can try to buy these properties (by making separate offers to the two owners) for 50% more than the appraised value, for which there is a 75% chance that the owner of Property 1 would agree to sell, and an 80% chance that the owner of Property 2 would agree to sell. If an offer at 1.5 times appraised value is turned down, they could then offer double the appraised value for that prop- erty, for which it is certain that the owner (of either property) would agree to sell. Ending up with no properties is worth nothing; ending up with just one property is worth only the appraised value of that one property; ending up owning both is worth $6,000,000.

Problem 1: Determine the EVPI by any method.

Reference no: EM132842178

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