Develop decision tree that will aid owners in their leasing

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Reference no: EM133607923

Problem: "If It Ain't Broke" Orthopedics is leasing a facility in LA for 20,000 a month. The partners are deciding on whether to buy a property and relocate the clinic or to continue leasing the current facility for another year and then relocate the clinic. They recently saw an as for a new medical complex in Glendale at a price of 2.8 million. The current interest rate for a 20-year loan is 7% per annum. They believe there is a 40% chance that this interest rate will fall to 5% per annum in a year's time. They also believe that another facility they are interested in will still be available in a year at a discounted price of 2.5 million. The partners have to decide whether to buy the new facility now or in a year. Intrest payments will be made on the loan at the end of each year. Develop a decision tree that will aid the owners in their leasing or purchasing decision. Fold back the tree and find the expected value.

Reference no: EM133607923

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