Amy Lloyd is interested in leasing a new Honda 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:
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 it 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 Hepburn Honda lease will cost her 36($299) 1 $0.15(36,000 2 36,000) 5 $10,764 if she drives 12,000 miles per year, 36($299) 1 $0.15(45,000 2 36,000) 5 $12,114 if she drives 15,000 miles per year, or 36($299) 1 $0.15(54,000 2 36,000) 5 $13,464 if she drives 18,000 miles per year.
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?
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?
e. Develop a risk profile for the decision selected in part d. What is the most likely cost, and what is its probability?
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?
Discuss the factors comprising the depreciation process.8.Discuss the distinction between capital and revenue expenditures for long-term assets.9.Discuss accounting for a...Dec 10 2019
How Affiliate Marketing Expert Made $12500 In Three Months..!!!Justin was an English teacher who has been trying to make extra money to supplement his income. He tried ev...Apr 23 2021
( a ) Fill in Table 1. (b) Using your own piece of graph paper, draw a graph of the firm’s demand, marginal revenue, marginal cost, and average total cost curves. (c) Cal...Apr 24 2020
A club charges a flat fee for an open bar (all-you-can-drink). Describe the adverse-selection problem?Apr 05 2020
Information on Carney Company’s fixed overhead costs follows:,Overhead applied . . . . . . . . . . . . $360,000,Actual overhead . . . . . . . . . . . . . 385,500,Budgeted...May 22 2020
Refer to the situation described in BE 4-8. Assume instead that the estimated fair value of the segment s assets, less costs to sell, on December 31 was $7 million rather...Apr 15 2020
In Figure 9-4, at an income level of Y1 and planned expenditures of (C + I)1, the level of autonomous investment isA) ED.B) EF.C) JK.D) GK.72) A permanent increase in aut...Dec 07 2019
A woman inherited $356,000. As she had no immediate need for the money at the time she inherited, she decided to invest some or all of it on January 1,201n,with a goal of...Aug 03 2020
Opinion Research, a marketing research firm, has a cost function for overhead costs of $60,000 per month plus $50 per client hour. In July its overhead allocation rate wa...Apr 21 2020
Design the critical sections of an 11-ft- (3.3-m-) span simply supported beam for bending moment and shearing forces using 𝜌=0.016. Given: f′c =3 ksi (21 MPa), fy...Jul 08 2020