human resources managemet

LASELL COLLEGE

MGMT 707 OPERATIONS MANAGEMENT

“Leasing a Car”.

Amy is interested in leasing a new Saab and has contacted 3 automobile dealers for pricing information. Each dealer has offered a closed end 36 month lease with no down payment due at the time of signing. Each lease includes a monthly charge and a mileage allowance. Additional miles receive a surcharge on a per mile basis. The following table details the charges.

Dealer	Monthly	Mileage	Cost per
	Charge	Allowance	Additional Mile
Forno Saab	$299	36,000	$0.15
Midtown Motors	$310	45,000	$0.20
Hopkins Auto	$325	54,000	$0.15

Amy wants to minimize her total 36 month lease. The problem is that Amy is not sure of how many miles she will drive over the next 3 years. Amy estimates that there is a 50% chance that she will drive 12,000 miles per year, a 40% chance that she will drive 15,000 miles and a 10% chance she will drive 18,000 miles per year.

Prepare a decision tree showing the total cost for each option.

What dealer’s lease option should Amy choose?

Hint: there are 3 main branches and 3 secondary branches.