Steeley Associates Versus Concord Falls

(1) request the permit

1.1 permit approved; 10% chance; $3,000,000
1.2 permit rejected; 90% chance
1.2.1 sell property; $700,000
1.2.2 construct low density building
1.2.2.1 future growth; 70% chance; $1,300,000
1.2.2.2 no future growth; 30% chance; $200,000
1.3 sue the town >> legal fee (300,000)
1.3.1 win the suit; 40% chance; $1,000,000
1.3.1.1 construct the high-density apartment; 10% chance; $3,000,000
1.3.2 linger on ; 10% chance; $200,000
1.3.3 lose the suit; 50% chance
1.3.3.1 sell property
1.3.3.1.1 growth mode; 50% chance; $900,000
1.3.3.1.2 no growth; 50% chance; $500,000
1.3.3.2 construct building
1.3.3.2.1 growth mode; 50% chance; $1,200,000
1.3.3.2.2 no growth; 50% chance; $100,000
(2) sell the property
2.1 Sell property >> 900,000
(3) construct low-density office building
3.1 future growth; 70% chance; $1,300,000
3.2. no future growth; 30% chance; $200,000

10% chance; $3,000,000

e; $900,000

e; $1,200,000

Steeley Associates Versus Concord Falls

permit approved (.10)
request the permit

2
1,767,000

permit rejected (.90)

4
1,630,000

sell the property

$900,000

1
1,767,000

with future growth (.70)

construct low-density
office building

3
970,000

no future growth (.30)

solutions to EV(noDES):
#9
650,000 = (1,200,000*.50) + (100,000*.50)
#8
700,000 = (900,000*.50) + (500,000*.50)
#7
700,000 maximum between #8 & #9
#6
1,930,000 = (4,000,000 * .4) + ([-200,000] * .1) + (700,000 * .5)
#5
970,000 = (1,300,000*.7) + (200,000 *.3)
#4
1,630,000 maximum of #5, #6 & #7
note: #6 = 1,930,000 - 300,000 (for the legal cost)

#3
#2
#1

970,000 = (1,300,000*.7) + (200,000*.3)

1,767,000 = (3,000,000*.1) + (1,630,000*.9)
1,767,000 maximum of #2, #3 and 900,000

Decision:
Based on the decision tree analysis above, the best alternative will have a payoff of $1,767,000.

Given this scenario, the team suggests that Steeley requests for a permit. If the permit is granted, Steel
In case the request for permit is reject, Steeley is advised to sue the town.
If they win the case, Steeley should proceed in contructing the high-density apartment but if they lose th

$3,000,000

sell property

$700,000

future growth (.70)

construct low-density
office building

###

5
$200,000

970,000 no future growth (.30)

,630,000

wins the suit (.40)

###

case lingers on (.10)

$200,000

sue the town

($300,000)

sell the property

1,930,000

700,000

lose the suit (.50)

$1,300,000

7
700,000 construct low-density
office building

$200,000

650,000

a payoff of $1,767,000.

t. If the permit is granted, Steeley should proceed with the construction of the high-density apartment.

ity apartment but if they lose the case, Steeley should opt to sell the property instead.

with future growth (.50)

$900,000

no future growth (.50)

$500,000

with future growth (.50)

$1,200,000

no future growth (.50)

$100,000

8
700,000

9
650,000

(1) go for 2 point

1.1 Win; 33% chance
1.1.1. Sugar Bowl; $7.2 M
1.2 Lose; 67% chance
1.2.1. Gator Bowl; $1.7 M
(2) go for 1 point
2.1. Overtime
2.1.1. success and tie; 98% chance
2.1.1.1 overtime
2.1.1.1.1 win; 20% chance; $7.2 M
2.1.1.1.2 loss; 80% chance; $1.7 M
2.1.2. failure; 2% chance; $1.7M