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lab1f07key - 1 AEM 417 Fall 2007 Answer Key LAB#1 Decision...

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AEM 417 Fall 2007 Answer Key LAB #1 - Decision Making Using Non-probabilistic Methods Case Study: Hartsfield International Airport in Atlanta, Georgia, is one of the busiest airports in the world. During the past 30 years, the airport has expanded again and again to accommodate the increasing number of flights being routed through Atlanta. Analysts predict that this increase will continue well into the next century. However, commercial development around the airport prevents it from building additional runways to handle the future air traffic demands. As a solution to this problem, plans are being developed to build another airport outside the city limits. Two possible locations for the new airport have been identified, but a final decision on the new location is not expected to be made for another year. The Magnolia Inns hotel chain intends to build a new facility near the new airport once its site is determined. Barbara Monroe is responsible for real estate acquisition for the company, and she faces a difficult decision about where to buy land. Currently, land values around the two possible sites for the new airport are increasing as investors speculate that property values will increase greatly in the vicinity of the new airport. The table below summarizes the current price of each parcel of land, the estimated present value of the future cash flows that a hotel would generate at each site if the airport is ultimately located at the site, and the present value of the amount for which the company believes it can resell each parcel if the airport is not built at the site.
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