Koloon Case Study

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Abstract This case study examines the decision making process of the Kowloon Development Company to the PrecisionTree decision tree software from Palisade. The Kowloon Development Company was faced with a major decision about their future investments. The General Manager of the Kowloon Development Company is usually involved in billion dollar investments, accurate decisions are needed. The company has to make a decision over the decision to purchase a new development project the total site area being 16,000 square feet. The objective is to use the use the Decision Tree software from Palisade, to determine the decision for the Kowloon Development Company whether or not to purchase the property. Decision trees provide a formal structure in…show more content…
The discounting rates should accurately reflect the opportunity cost of capital and consequently the systematic risk of the project. Quite often, determination of the discounting rates, or the "hurdle" rates, has been based nothing more than intuition. However, "hurdle" rates lead to incorrect investment decisions because high return projects are by definition more favored than low return ones. The drawback is that the absolute expected return of a project is very high, but it is still not high enough to compensate for the high risk that has to be borne. Or conversely, a project may be expected to generate very modest return, but this return is already higher than its riskiness. In other words, the expected return of a project must be commensurate with its risk, or more precisely, it’s systematic or market risk. (HKUST/CEIBS, 1998). Observation The objective is to use the use the Decision Tree software from Palisade, to determine the decision for the Kowloon Development Company whether or not to purchase the property. Decision trees provide a formal structure in which decisions and chance events are linked in sequence from left to right. Decisions, chance events, and end results are represented by nodes and connected by branches. The result is a tree structure with the "root" on the
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