Koloon Case Study

Abstract This case correction examines the purpose reservation process of the Kowloon growth Company to the Precision steer purpose tree software from Palisade. The Kowloon study Company was set about with a major last about their emerging investments. The General director of the Kowloon Development Company is usually involved in billion long horse investments, accu yard stopping points are involve. The fede confine has to make a decision over the decision to acquire a new nurture project the total identify area being 16,000 square toes feet.The nonsubjective is to use the use the Decision Tree software from Palisade, to determine the decision for the Kowloon Development Company whether or not to leveraging the stead. Decision trees leave behind a formal structure in which decisions and circumstances events are think in sequence from left to right the general manager of the Kowloon Development come with mustiness decide whether to recommend the purchase of t he 350 one molar concentration thousand dollar sign seat and what would be the rate of concede of the investment. He also pauperizationed to pick out whether or not the billet would be best served certain or left un develop.He knows that if he doesnt make a decision the board of directors would invest the money for two years at half dozen percent. After performing the test using the PrecisionTree software the discipline decision should be to invest 350 million. The only way to see the highest rate from the investment would be 420 million, and if the Kowloon Development Company decided to purchase the property they would only receive a maximum rate of pop off 394 million for a developed piece of land. Property Investment Decision entranceway Kowloon Development Company is an investment go with, involved in the investment, victimization, and counseling of properties. BusinessWeek) The company develops and sells residential, commercial, and large office buildings in Ho ng Kong. It also provides property management serve for the projects developed by the company, luxury residential and serviced apartments, and commercial buildings and public admit estates. The company also involves in the property maturement, investment holding, property management and security services, financial services, retail, construction, film distri plainlyion, provision of consultancy services, property trading and investment. BusinessWeek) As of December 31, 2008, its investment properties comprised primarily retail shops and offices, covering approximately 75,000 square meters of gross account area and managed properties covered a gross floor area of approximately 560,100 square meters. (BusinessWeek) In 1998, the Kowloon Development Company was face up 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. Statement of problemThe c ompany is quarreled over the decision to purchase a new development project the total site area being 16,000 square feet. The general manager of the Kowloon Development company must decide whether to recommend the purchase of the 350 million dollar property and what would be the rate of choke of the investment. He also needed to know whether or not the property would be best served developed or left undeveloped. He knows that if he doesnt make a decision the board of directors would invest the money for two years at six percent. Determining RiskA structural change in the property market is anticipated as a moderate of a vastly growing pension fund industry in China, and as at that place is a renewed interest in Hong Kong and China properties from foreign currency since early 1998. Both domestic and foreign funds will need to find investment opportunities in real property. Foreign funds front at real estate as a long-term investment. They ingest serious and professional approa ches in selecting projects, and they want to associate themselves with professional, reliable and brawny consulting firms. HKUST/CEIBS, 1998). Property investors almost all originating from HK and commission a practicability study on property investment and development in Hong Kong have faced the problem of finding appropriate discounting rates in their analyses. The discounting rates should accurately reflect the opportunity apostrophize of capital and consequently the systematic put on the line of the project. Quite often, determination of the discounting rates, or the hurdle rates, has been based nothing much than intuition. However, hurdle rates lead to incorrect investment decisions ecause high return projects are by definition more favored than low return ones. The drawback is that the absolute judge return of a project is very high, but it is still not high enough to compensate for the high take place that has to be borne. Or conversely, a project may be expected to ge nerate very modest return, but this return is already high than its riskiness. In other words, the expected return of a project must be commensurate with its risk, or more precisely, its 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 left and mixed payoffs on the right. Probabilities f events occurring and payoffs for events and decisions are added to to each one node in the tree. With PrecisionTree, youll encounter the payoff and probability of each possible path through a tree. (Palisade) The first decision is to decide whether o r not to bring soul to determine the future selling impairment that cost 500 thousand dollar we can also calculate the amount the Kowloon Development company would make if the decided to invest the money rather than purchase the land, that price was determined to be 420 million.The next step in the decision making process was to take the information from the investigating crew provided and determine that if we purchase the land would the highest rate of return would come from selling the property developed or undeveloped. The investigating firms were also used to determine the appropriate development ratio as well as the associated construction and interest cost were. The firm estimated that the cost of construction at HKD 106 million for a development ratio of 5. 5, or HKD 150 million for a development ration of 7. 8.With the information provided the next decision was to determine whether or not to pay for the higher development ratio, there was a 60 percent chance that the appl ication would get approved and if it was approved there was a 50 percent chance that there would be an 80 million additional cost associated with the approved application. Results PrecisionTree determines the best decision to make at each decision node and marks the branch for that decision TRUE. Once your decision tree is complete, PrecisionTrees decision analysis creates a full statistics comprehend on the best decision to make and its comparison with alternative decisions. Palisade) As Results the correct decision should be to invest 350 million. The only way to guarantee the highest rate from the investment would be 420 million, and if the Kowloon Development Company decided to purchase the property they would only receive a maximum rate of return 394 million for a developed piece of land as seen in the graph. References BusinessWeek. (June, 1) BusinessWeek Company Description Retrieved January, 12 2012, from http//investing. businessweek. com/research/stocks/snapshot/snapshot . asp? watch=34HK Carmona, M. 2006) Designing mega-projects in Hong Kong Reflections from an academic accomplice. Journal of URBAN visualise 11(1) 105124. HKUST/CEIBS (1998), Hang Cheong Surveyors Limited (A management case study developed as a basis for class discussion), 4-5. Karakiewicz, J. (2005) The city and the megastructure. In M. Jenks and N. Dempsey (eds. ) early Forms and Design for Sustainable Cities. Oxford Architectural Press. Kikutake, K. , Otaka, M. , Maki, F. and Kurokawa, K. (1960) Metabolism 1960 A Proposal for parvenu Urbanism, in proceeding of 1960 realness Design Conference, Tokyo OrganizingCommittee of World Design Conference. Lau, S. and Wang, J. (2005) High-Density, High-Rise and Multiple and Intensive Land Use in Hong Kong A time to come City Form for the New Millennium. In M. Jenks and N. Dempsey (eds. ) Future Form and Design for Sustainable Cities. Oxford Architectural Press. Palisades. (January 14) Palisades Product description retrieved January 14 , 2012 from http//www. palisade. com/precisiontree/ Worpole, K. (2000) The prise of Architecture Design, Economy and the Architectural Imagination. London Royal Institute of British Architects Future Studies.