Answer:
the best alternative is to sell the shopping center to the insurance company
Explanation:
Answer:
Step 1:
Facts given in the case
Current rezoning policy = 4 home / acre
Cost of land = $3, 000, 000
Rezoning alternative: (RZ)
Probability of rezoning = 0.40
Additional costs = $1, 000, 000
Alternatives: 1 shopping center (SC) or 1, 400 apartments (AP)
Probability of selling shopping center to large department store chain (DS) = 0.50
Profit from selling shopping center to large department chain store excluding land cost = $5,000, 000
Probability of selling shopping center to insurance company (IC) = 0.50
Profit from selling shopping center to insurance company excluding land cost = $8,000, 000
Probability of selling 1, 400 apartments to real estate investment (RE) = 0.60
Profit from selling the to a real estate investment = 1, 400 x $2, 000 = $2, 800, 000
Probability of selling 1, 400 apartments to others (OT) = 0.40
Profit from selling 1, 400 apartments to others excluding land cost = $2, 500 x 1, 400 = $3, 500, 000
Non- rezoning alternative: (NRZ)
Probability of non-rezoning = 0.60
Number of homes to be built (H)= 500 homes (mock figure as full question is not given)
Profit from selling 500 homes excluding the land cost = $3, 500 x 500 = $1, 750, 000
(mock figures as complete question is not given)
What is the best alternative?
Land if rezone, build shopping center and sell it to the insurance company
It has the highest profits = $8, 000, 000
