AGEC 3413- HOMEWORK 7

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AGEC 3413 - Fall Semester 2010 Homework 7-1 Probability of Random Event (Annual Miles Driven) Annual Cost per Event: Probability of Each Lease Monthly Mileage Additional Annual Miles Driven Annual Mileage Level Company Lease Cost Allowance Mile (miles) Company 1 \$520 12,000 \$0.15 12,000 10% Company 2 \$520 15,000 \$0.20 15,000 40% Company 3 \$530 18,000 \$0.17 18,000 40% Company 4 \$550 20,000 \$0.25 20,000 10% 100% Table 1 - Conditional Expected Values (CEV) "Annual Lease Cost" Lease Company Choices Event: Company Company Company Company Annual Miles Driven 1 2 3 4 (miles) 12,000 \$6,240 \$6,240 \$6,360 \$6,600 15,000 \$6,690 \$6,240 \$6,360 \$6,600 18,000 \$7,140 \$6,840 \$6,360 \$6,600 20,000 \$7,440 \$7,240 \$6,700 \$6,600 Table 2 - Conditional Opportunity Losses (COL) Lease Company Choices Event: Company Company Company Company Annual Miles Driven 1 2 3 4 (miles) 12,000 \$6,240 \$0 \$0 \$120 \$360 15,000 \$6,240 \$450 \$0 \$120 \$360 18,000 \$6,360 \$780 \$480 \$0 \$240 20,000 \$6,600 \$840 \$640 \$100 \$0 Table 3 - Expected Monetary Value (EMV) and Expected Opportunity Loss (EOL) Lease Company Choices Company Expected Monetary Value Expected Opportunity Loss % 1 6900.0 \$576 10% 2 6580.0 256 40% 3 6394.0 70 40% 4 6600.0 \$276 10% Table 4 - Expected Annual Cost with Perfect Information Weighted Event: Conditional Conditional Annual Miles Driven Probability Annual Cost Cost (miles) 12,000 10% \$6,240 \$624 15,000 40% \$6,240 \$2,496 18,000 40% \$6,360 \$2,544 20,000 10% \$6,600 \$660 ------------- Expected Annual with Perfect Information \$6,324 Table 5 - Expected Value of Perfect Information (EVPI) Lease Company Choices Company Company Company Company 1 2 3 4 Expected Monetary Value of Each Choice \$6,900 \$6,580 \$6,394

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• Fall '08
• KENNEDY
• Probability theory, perfect information, Company Company Company, Lease Company Choices Company Company Company Company

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AGEC 3413- HOMEWORK 7 - A 1 2 3 4 5 6 7 8 9 10 11 12 13 14...

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