Question: ING's Consulting Solution division has been approached by the North Carolina Regional Airport Authority about a difficult problem with overcrowding at the Charlotte airport. There are three different options under consideration.

a) The airport could be totally redesigned and rebuilt at a cost of $8.2M. The present value of increased revenue from a new airport is in question. There is a 70% probability that this present value would be $11.0M, a 20% probability the present value would be $5.0M, and a 10% probability that the present value would be $1.0M depending on whether the new airport is a success, a moderate success, or a failure.

b) The airport could be remodeled with a new runway for a cost of $4.7M. The present value of the increased revenue would be $6.0M (with a probability of 0.8) or $3.0M (with a probability of 0.2).

c) They could do nothing with the airport and suffer a loss of revenue of either $1 OM (65% chance) or $4.0M (35% chance).

Draw a decision tree and select the option that will maximize the present value.

How much should the airport authority be willing to pay for perfect information about the success of a brand new airport?

How much should ING charge for a detailed report on the success of a remodeled airport?