Emil Hansen Is Interested in Leasing a Sports-Utility Vehicle and Has

question 27

Essay

Emil Hansen is interested in leasing a sports-utility vehicle and has contacted three automobile dealers for pricing information. Each dealer offered Emil 24-month lease with no down payment due at the time of signing. Each lease includes a monthly cost, mileage allowances, and the cost for additional miles and the details are given in the below table.

Emil decided to choose the lease option that will minimize his total 24-month cost. Emil is not sure how many miles he will drive in the next two years. Hence, for the purpose of decision, assume that Emil wants to evaluate options of driving 20,000 miles per year, 23,000 miles per year, and 25,000 miles per year. a. Construct a decision tree based on the payoff table constructed in the previous problem.
b. Recommend a decision based on the use of optimistic, conservative, and minimax regret approaches?

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Definitions:

Annual Dividend

The total dividend payments a company makes to its shareholders in a year.

Required Rate of Return

The required rate of return is the minimum return an investor expects to receive on an investment, considering its risk level.

Dividend Increase

An action by a company to increase the amount of dividends distributed to its shareholders.

Market Rate of Return

The average rate of return that investors expect to earn in the market on an investment, reflecting the risk and liquidity of the asset.