Question: Amy Lloyd is interested in leasing a new Saab 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. Each 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:

a.) What is the decision, and what is the chance event?

b.) Construct a payoff table for Amy’s problem

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 approaches? = Optimistic: Forno Saab ; Conservative: Hopkins Automotive ; Minimax: Hopkins Motors

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? = Midtown motors

e.) Develop a risk profile for the decision selected in part (d). What is the most likely cost, and what is its probability? = Most likely: $11,160; Probability = 0.9

f.) Suppose that after further consideration, Amy concludes that the probabilities that she will drive 12,000, 15,000, and 18,000 miles per year are 0.3, 0.4, and 0.3, respectively. What decision should Amy make using the expected value approach? = Midtown motors or Hopkins Automotive