Dante Development is considering bidding for a contract for a new office complex. Figure 4.17 shows the decision tree analyzed by one of the analysts at Dante company. At node 1, the company must decide whether to bid or not. The cost to prepare is $200,000. The upper branch of the 2nd node shows that the company has an 80% chance of winning if it participates in the bidding. If they win, they will have to pay $2,000,000 to become a partner of the project. The third button shows that the company will have to consider the market survey to predict the demand for the company division before proceeding with construction. The cost of the survey is $150,000. The 4th node is a status node that shows the probability of results when performing the survey. Nodes 5, 6, and 7 are similar in that they are all nodes that decide whether the Dante company should build an office complex or sell the investment rights of the project to other companies. The decision to build a project will yield a profit of $5,000,000 if demand is high and $3,000,000 if demand is moderate. If the Dante company chooses to sell the investment rights, it will gain $3,500,000 from the sale. Probability displayed on 4th, 8th and 9th nodes based on survey results.
a) Verify the company's projected profit shown at the bottom of each decision tree is $2,650,000 and $650,000 in the first two results.
b) What is the optimal strategy for the company, then what is the expected profit?
c) How much does a market survey cost for Dante to change its survey decision?
d) Draw a risk schema model for the company Dante.