Identify the decision that minimizes annual expected cost

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Reference no: EM131994079

Mr. Maloy has just bought a new $30,000 sport utility vehicle. As a reasonably safe driver, he believes there is only about a 5% chance of being in an accident in the coming year. If he is involved in an accident, the damage to his new vehicle depends on the severity of the accident. The probability distribution of damage amounts (in dollars) is given in the file P06_54.xlsx. Mr. Maloy is trying to decide whether to pay $170 each year for collision insurance with a $300 deductible. Note that with this type of insurance, he pays the first $300 in damages if he causes an accident and the insurance company pays the remainder. (Solve in Excel and show steps)

A. Identify the decision that minimizes Mr. Maloy’s annual expected cost. (Show steps used in Excel)

Reference no: EM131994079

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