You are a real estate developer and are trying to determine the EMV of your net commission from a sales call to a potential purchaser. Assume that…

You are a real estate developer and are trying to determine the EMV of your net commission from a sales call to a potential purchaser.

Assume that your transportation cost is $1.45 per mile Assume that the sales call is 70 miles round trip

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Assume that your transportation time is 2.25 minutes per mile

Assume that the value of your time for transportation is $55.00 per hour Assume that it will take 3 hours to meet with the potential purchaser

Assume that the value of your time for the customer meeting is $150.00 per hour Assume that you will have a 19% chance of a successful sales call (sales call #1)

If sales call #1 is successful,you will sell a house valued at $275,000 with likelihood = 55% you will sell a house valued at $300,000 with likelihood = 35% you will sell a house valued at $425,000 with likelihood = 10%

Assume that your commission will be 2.5% of the value of the house if sales call #1 is successful.

  1. a) What is the expected cost (time and transportation) of sales call #1?
  2. b) Without assuming that the sales call will be successful (that is, it may or may
  3. not be a success), what is the expected gross commission of sales call #1 (do not net out the expected costs)?

Suppose you have a second possible sales call (sales call #2). Assume that the expected cost remains the same and that the commission rate remains 2.5%, but that the following information is the different information for sales call #2.

Assume that you will have a 12% chance of a successful sales call (sales call #2) If sales call #2 is successful,

you will sell a house valued at $285,000 with likelihood = 45% you will sell a house valued at $320,000 with likelihood = 25% you will sell a house valued at $355,000 with likelihood = 30%

c) Assuming that your sales call is successful, which sales call is the maximin sales call? (Don’t simply define maximin, but use values to justify your response). 

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