Question

A real estate investor has The opportunity to purchase land currently zoned residential. If the county board approves a request to resume the property as commercial within the next year, the investor will be able to lease the land to a large discount firm that wants to open a new store on the property. However, if the zoning change is not approved, the investor will have to sell the property at a loss. Profits (In thousands of dollars) are shown in the following pay off table

                                          State of nature       

                                    Approved.       Not approved 

Decision alternative.                  S1.              S2

Purchase, d1.                           550.              -190

Do not purchase, d2.                   0.                 0

B. The investor can purchase an option to buy the land. Under the option, the investor maintains the rights to purchase the land anytime during the next three months while learning more about possible resistance to the rezoning proposal from area residence. Probabilities are as follows

                         Let H= high resistance to rezoning

                               L= low resistance to rezoning

P(H)= 0.51.         P(S1 I H)=0.18.        P(S2 I H)=0.82

P(L)= 0.49.          P(S1 I L)=0.88.        P(S2 I L)=0.12

High resistance: do not purchase

Low resistance: purchase

C. What is the maximum that the investor should be willing to pay for the option? Round your answer to three decimal places. Why or why not?

EVSI = (.         )

The EVSI is what I am needing previous answers have given me 197,020 and that is wrong when I type it in. Any help on this would be appreciated 

Answer 1

EVSI=node2-node5=225988-180000=45988

Maximum investor should be willing to pay is EVSI=45988