Your company is trying to decide whether to buy or lease snow-removal equipment. You have gathered all the relevant cost data and converted them to equivalent uniform annual costs (EUACs), as shown in the table below. The complicating factor in your evaluation is that the need for the snow-removal equipment might be heavy or light. You estimate that there is a 60 percent probability of heavy use and a 40 percent probability of light use.

a. Draw a decision tree to represent this situation.

b. Using decision tree analysis, determine whether the new snow-removal equipment should be leased or bought.

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Need Lease Buy Light $2,375 $3,000 Heavy $4,250 $4,000