Amy Lloyd is interested in leasing a new car and has contacted three automobile dealers for pricing information. Each dealer offered Amy a closed-end 36 month lease with no down payment due at the time of signing. Ea lease includes a monthly charge and a mileage allowance. Additional miles receive a surcharge on a per-mile basis. The monthly lease cost, the mileage allowance, and the cost for additional miles follow: Honthly Cost Mileage Allowance Additional Mile Dealer Cost per Dealer A $309 36.000 $0.15 Dealer B $320 45,000 $0.20 Dealer C $335 54,000 $0.15 Amy decided to choose the lease option that will minimize her total 36-month cost. The difficulty is that Amy is not sure how many miles she will drive over the next three years. For purposes of this decision she believes i is reasonable to assume that she will drive 12,000 miles per year, 15.000 miles per year, or 18,000 miles per year. With this assumption Amy estimated her total costs for the three lease options. For example, she figures that the Dealer A lease will cost her $11,124 if he drives 12,000 miles per year, $12,474 if he drives 15,000 miles per year, or $13,824 if he drives 18,000 miles per year. (a) What is the decision, and what is the chance event? The decision is to choose the best lease option There are ? v alternatives. The chance event is -Seledt- There are ? v possible outcomes. (b) Construct a payoff table. (Enter your answers in $). Annual Miles Driven Dealer 12,000 15,000 18,000 Dealer A $11,124 $12,474 $13,824 Dealer B$ Dealer C (c) If Amy has no idea which of the three mileage assumptions is most appropriate, what is the recommended decision (leasing option) using the optimistic, conservative, and minimax regret apPproaches? The recommended decision using the optimistic approach is -Select- approach is -Seled- ). - The recommended decision using the minimax regret The recommended decision using the conservative approach is -Select-- (d) Suppose that the probabilities that Amy drives 12,000, 15,000, and 18,000 miles per year are 0.5, 0.4, and 0.1, respectively. What option should Amy choose using the expected value approach? EV(Dealer A) = $ EV(Dealer B)- S EVCDealer S

Amy Lloyd is interested in leasing a new car and has contacted three automobile dealers for pricing information. Each dealer offered Amy a closed-end 36 month lease with no down payment due at the time of signing. Ea lease includes a monthly charge and a mileage allowance. Additional miles receive a surcharge on a per-mile basis. The monthly lease cost, the mileage allowance, and the cost for additional miles follow: Honthly Cost Mileage Allowance Additional Mile Dealer Cost per Dealer A $309 36.000 $0.15 Dealer B $320 45,000 $0.20 Dealer C $335 54,000 $0.15 Amy decided to choose the lease option that will minimize her total 36-month cost. The difficulty is that Amy is not sure how many miles she will drive over the next three years. For purposes of this decision she believes i is reasonable to assume that she will drive 12,000 miles per year, 15.000 miles per year, or 18,000 miles per year. With this assumption Amy estimated her total costs for the three lease options. For example, she figures that the Dealer A lease will cost her $11,124 if he drives 12,000 miles per year, $12,474 if he drives 15,000 miles per year, or $13,824 if he drives 18,000 miles per year. (a) What is the decision, and what is the chance event? The decision is to choose the best lease option There are ? v alternatives. The chance event is -Seledt- There are ? v possible outcomes. (b) Construct a payoff table. (Enter your answers in $). Annual Miles Driven Dealer 12,000 15,000 18,000 Dealer A $11,124 $12,474 $13,824 Dealer B$ Dealer C (c) If Amy has no idea which of the three mileage assumptions is most appropriate, what is the recommended decision (leasing option) using the optimistic, conservative, and minimax regret apPproaches? The recommended decision using the optimistic approach is -Select- approach is -Seled- ). - The recommended decision using the minimax regret The recommended decision using the conservative approach is -Select-- (d) Suppose that the probabilities that Amy drives 12,000, 15,000, and 18,000 miles per year are 0.5, 0.4, and 0.1, respectively. What option should Amy choose using the expected value approach? EV(Dealer A) = $ EV(Dealer B)- S EVCDealer S

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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$D e a l e r$	$M o n t h l y C o s t$	$M i l e a g e A l l o w a n c e$	$C o s t / e x t r a m i l e$
$D e a l e r A$	$$ 309$	$36, 000$	$0.15$
$D e a l e r B$	$$ 320$	$45, 000$	$0.20$
$D e a l e r C$	$$ 335$	$54, 000$	$0.15$