The lease of Theme Park Inc is about to expire Management must decide whether to renew the lease for another 10 years or to

Question

The lease of Theme Park Inc is about to expire Management must decide whether to renew the lease for another 10 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 shown below Suppose that the management of Theme Park Inc has decided that there is a 0 41 probability that the motel s application will be approved Options Renew Relocate Alternative a 1 If management uses maximum expected monetary value as the decision criterion calculate expected monetary value for the alternatives Renew and Relocate Renew Relocate Motel Approved 610 000 2 525 000 O Renew Motel Rejected 4 525 000 310 000 a 2 Which alternative should it choose Relocate Expected Value

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