AGEC 3413- HOMEWORK 7

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

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

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