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A construction company has obtained a contract for a highway project and will need to lease an additional road grader for a month to fill out its equipment fleet. The company is trying to decide between two different lease options for the grader: 1) lease an older grader for $7,500, or 2) lease a newer grader for $10,000. The newer grader is still under warranty, so the lease cost covers all repair expenses. However, the company would be responsible for any repair expenses if it leases the older grader. Scenarie A: The construction company's maintenance foreman believes there is a 25% chance that there will be no need for repairs with the older grader, but also thinks there is a 45% chance that minor repairs ($2,000) could be nooded, and a 30% chance that major repairs ($3,000) might be required. 1. What is the expected cost (lease plus repairs) of the older grader? How did you derive this value? 2. What is the expected cost (lease plus repairs) of the newer grader? How did you derive this value? 3. Using an EMV analysis, what is the best lease option? (Older grader or Newer grader) Why? 4. Suppose the company could hire an experienced mechanic to inspect the old grader to determine (before the company makes its final decision) whether no repairs, minor repairs, or majar repairs would be required. If the mechanic is always correct in her assessments, what is the most the company should pay the mechanic for the inspection (based on the EVPI)? How did you derive this value? 5. Suppose the company decides not to hire the experienced mechanic, and is unwilling to pay more than $10,000 for the grader under any circumstances. Would this change the decision about which grader to lease? (Yes/No) Why'why not