Week 3 solution 1.xls - 1 BEVERLY HILLS 3-YEAR LEASE Given...

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1. BEVERLY HILLS Page 1 Given Data 3-YEAR LEASE MONTHLY COST MILEAGE ALLOWANCE $ Option 1 330 36,000 Option 2 380 45,000 Option 3 430 54,000 a) Payoff table 3-YEAR LEASE MONTHLY COST MILEAGE ALLOWANCE $ Option 1 330 36,000 Option 2 380 45,000 Option 3 430 54,000 b) EMV 3-YEAR LEASE 12000/year 15000/year 36000 45000 Option 1 11880 15030 Option 2 13680 13680 Option 3 15480 15480 Probability 0.4 0.3 TO MINIMIZE HERE EXPECTED COST, BEVERLY WOULD CHOSE THE OPTI
1. BEVERLY HILLS Page 2 COST PER EXCESS MILE ($) 0.35 0.25 0.15 Cost for 3 years 12000/year (MONTHLY COST * 36 month) 36000 11880 11880 13680 13680 15480 15480 18000/year 54000 EMV 18180 14715 15930 14355

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