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Beverly Mills has decided to lease a hybrid car to save on gasoline expenses and to do her part to help keep the environment clean.

Beverly Mills has decided to lease a hybrid car to save on gasoline expenses and to do her part to help keep the environment clean. The car she selected is available from only one dealer in the local area, but that dealer has several leasing options to accommodate a variety of driving patterns. All the leases are for 3 years and require no money at the time of signing the lease. The first option has a monthly cost of $660, a total mileage allowance of 42,000 miles (an average of 14,000 miles per year), and a cost of $0.70 per mile for any miles over 42,000. The following

table summarizes each of the three lease options:

3-Year LeaseMonthly CostMileage Allowance (in miles) for 3 yearsCost per Excess Mile
Option 1$66042,000$0.70
Option 2$71051,000$0.50
Option 3$76060,000$0.30

Beverly has estimated that, during the 3 years of the lease, there is a 30% chance she will drive an average of 14,000 miles per year (Short Mileage), a 20% chance she will drive an average of 17,000 miles per year (Medium Mileage), and a 50% chance that she will drive 20,000 miles per year (Long Mileage). In evaluating these lease options, Beverly would like to keep her costs as low as possible.

  1. Develop a payoff (cost) table for this situation.
Short Mileage (0.3)Medium Mileage (0.2)Long Mileage (0.5)
Option 1
Option 2
Option 3

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