Gabriel Macht has decided to lease a yacht because he loves it. A dealer has several leasing options to accommodate a variety of driving patterns. All the leases are for 3 years and require no money at the time of signing the lease. The first option has a monthly cost of $230, a total mileage allowance of 36,000 miles (an average of 12,000 miles per year), and a cost of $0.65 per mile for any miles over 36,000. The following table summarizes each of the three lease options:
3-Year Lease
Monthly Cost
Mileage Allowance
Cost Per Excess Mile
Option 1
$230
36000
$0.65
Option 2
$285
45000
$0.55
Option 3
$295
54000
$0.95
Gabriel has estimated that, during the 3 years of the lease, there is a 20% chance she will drive an average of 12,000 miles per year, a 40% chance she will drive an average of 15,000 miles per year, and a 40% chance that she will drive 18,000 miles per year. In evaluating these lease options, Gabriel would like to keep her costs as low as possible.
(a) Develop a payoff (cost) table for this situation.
(b) What decision would Gabriel make if she were optimistic?
(c) What decision would Gabriel make if she were pessimistic?
(d) What decision would Gabriel make if she wanted to minimize her expected cost (monetary value)?
(e) Calculate the expected value of perfect information for this problem.
Need solution in excel.
8 years ago
Purchase the answer to view it
Management.xlsx
