Assignment: Decision Making
HYY Consulting is a new venture that develops and markets products offered for sale in the Second Life marketplace. The company is currently located in Philadelphia and employs 150 people. Due to strong growth, the company needs additional office space. The company has the option of leasing additional space at its current location in Philadelphia for the next two years and then moving to a new building. Another option is moving the entire operation to a small rural town immediately.
If the company chooses the first option and leases new space at its current location, at the end of two years it can either lease a new building in Philadelphia or move to a small rural town.
The following are some additional facts about the alternatives and the current situation:
1. The company has a 75 percent chance of surviving the next two years.
2. Leasing the new space for two years at the current location in Philadelphia would cost $750,000 per year.
3. Moving the entire operation to a small rural town would cost $1 million. Leasing space in the small rural town would cost $500,000 per year.
4. Moving to a new building in Philadelphia would cost $200,000 and leasing the new building space would cost $650,000 per year.
5. The company can cancel the lease at any time.
6. The company plans to build its own building in five years, if it survives.
Assuming all other costs and revenues are the same no matter where the company is located, what should HYY Consulting do? Should the
company lease additional space at its current location in Philadelphia for the next two years and then move to a new building? Why or why not? Should the company move the entire operation to a small rural town immediately? Why or why not?