Problem regarding the investing in equipment

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Reference no: EM131008004

Investing in equipment

KickGrass Lawncare is a service that cares for lawns in a large, affluent community. Shawn Overgrowth, the owner, is considering the purchase of new zero-turn riding lawn tractors, which would allow him to expand his business. The tractors cost $6300 each, and he would purchase two of them. Another alternative is to pur- chase three additional mowers of the current type to add to his current equipment. Those would cost $475 apiece. Or he could face the coming gardening season with his exist- ing equipment. Shawn estimates that in a good growing season, the tractors would allow him to expand his business by $40,000. But if the summer is hot and dry (so lawns don't grow) or cold and wet (ditto), he'd only be able to add about $15,000 in contracts. If he purchases the mowers, he could expand his business by $10,000 in a good year or by just $5,000 in a bad one. And if he spends nothing, he won't expand his business. In a bad year, his income would con- tract by about $1,000.

Construct a payoff table and tree diagram for Shawn's decision. Don't forget to include his expenses in the calcu- lations.

Reference no: EM131008004

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