Problem: Formulate a Decision Support Model to solve this problem.
The New York City Development Corporation has just purchased a small hotel for conversion to condominium apartments. The building, in a popular area of New York, will be highly marketable, and each condominium sale is expected to yield a good profit. The conversion process, however, includes several options. Basically, four types of condominiums can be designed out of the former hotel rooms. They are: deluxe one-bedroom apartments, regular one-bedroom apartments, deluxe studios, and efficiency apartments. Each will yield a different profit, but each type also requires a different level of investment in carpeting, painting, appliances, and carpentry work. Bank loans dictate a limited budget that may be allocated to each of these needs. Profit and cost data, and cost of conversion requirements for each apartment are shown in the accompanying table.
|
Renovation
Requirements
|
Deluxe
1-Bedroom
$
|
Regular
1-Bedroom
$
|
Deluxe
Studio
$
|
Efficiency
$
|
Total Budgeted
$
|
|
New carpeting
|
1,100
|
1,000
|
600
|
500
|
35,000
|
|
Painting
|
700
|
600
|
400
|
300
|
28,000
|
|
New appliances
|
2,000
|
1,600
|
1,200
|
900
|
45,000
|
|
Carpentry work
|
1,000
|
400
|
900
|
200
|
19,000
|
|
Profit per unit
|
8,000
|
6,000
|
5,000
|
3,500
|
|
Thus, we see that the cost of carpeting a deluxe one-bedroom unit will be $1,100, the cost of carpeting a regular one-bedroom unit is $1,000, and so on. A total of $35,000 is budgeted for all new carpeting in the building.
Zoning regulations dictate that the building contain no more than 50 condominiums when the conversion is completed – and no less than 25 units.