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BADM 275 ANALYTICAL TOOLS FOR BUSINESS DECISIONS
Question Description
A group of businessmen is considering the construction of a hotel. If the hotel demand is high the businessmen could realize a net profit of $200,000. If the hotel demand is not favorable they could lose $60,000. The best the businessmen can guess is that there is a 50-50 chance the hotel will be successful. The businessmen have been approached by a market research firm that offers to perform a study of the market at a fee of $10,000. The market research firm uses the following statements:
probability of a favorable market given a favorable study = 0.85
probability of an unfavorable market given a favorable study = 0.15
probability of a favorable market given an unfavorable study = 0.10
probability of an unfavorable market given an unfavorable study = 0.90
probability of a favorable research study = 0.60
probability of an unfavorable research study = 0.40
The EMV for node 1 is
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