Maximum expected monetary value

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Reference no: EM13979156

The lease of Theme Park, Inc. is about to expire. Management must decide whether to renew the lease for another ten years or to relocate near the site of a proposed motel. The town planning board is currently debating the merits of granting approval to the motel. A consultant has estimated the net present value of Theme Park's two alternatives under each state of nature as show. What course of action would you recommend using

Maximax
Maximin
Laplace
Minimax regret

Options	Motel Approved	Motel Rejected
Renew	$500,000	$4,000,00
Relocated	5,000,000	100.00

Suppose that the management of Theme Park, Inc., has decided that three is a .35 probability that the motel's application will be approved.

If management uses maximum expected monetary value as the decision criterion, which alternative should it choose?
Represent this problem in the form of a decision tree
If management has been offered the option of a temporary lease while the town planning board considers the motel's application, would you advice management to sign the lease? The lease will cost $24,000

Reference no: EM13979156

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