A small real estate investment firm is considering a new project. A piece of land has become available for purchase which has the potential to be the site of a new office building the firm is considering building and leasing. A decision regarding the purchase of the land must be made immediately because there is another interested buyer. The land can be purchased for $100,000. The cost of constructing the new office building will depend upon what interest rates are at the time of construction since this part of the project must be financed. If interest rates are low, the construction costs (including financing costs) will be $600,000. If interest rates are high, the construction costs (including financing costs) will be $1,000,000. The firm expects interest rates to be low with probability .4 and high with probability .6. If the firm decides to buy the land, then their decision to build or not will be determined after the interest rate uncertainty has been resolved. If the building is built, the income gained from leasing it will depend upon whether the firm can lease all of the office space, or only a fraction of it. The firm expects that it will achieve full occupancy with30 31 probability .3 and partial occupancy with probability .7. Full occupancy will provide income of $2,000,000, but partial occupancy will provide income of only $500,000. Order the decisions and uncertainties you face in this decision problem and aggregate them into a decision tree. Perform backwards induction to determine the optimal strategy for the real estate investment firm. Assume the small firm is an expected value maximizer. (Write the net payoffs in thousands of dollars in your decision tree, i.e., drop 3 zeros).