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 are as follows: Cost per Dealer Hepburn Honda Midtown Motors Hopkins Automotive Monthly Cost ($) 299 310 325 Mileage Allowance 36,000 45,000 54,000 Additional Mile ($) 0.15 0.20 0.15 Amy decided to choose the lease option that will minimize the total 36-month cost. However, Amy is uncertain about how many miles will be driven in this car over the next three years. For purposes of this decision, Amy believes it is reasonable to assume that the car will be driven 12,000 miles per year, 15,000 miles per year, or 18,000 miles per year. With this assumption, Amy estimated the total costs for the three lease options. For example, Amy figures that the Hepburn Honda lease will cost 36($299)$0.15(36,000 36,000)$10,76412 5 year, 36($299)$0.15(45,000 36,000)$12,11412 5 per year, or 36($299)$0.15(54,000 36,000)$13,46412 5 if the car is driven 12,000 miles per if the car is driven 15,000 miles if the car is driven 18,000 miles per year.

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

b. Construct a payoff table for Amys 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, conserva-tive, 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 the car will be driven 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?