timer Asked: Feb 2nd, 2015

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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