Option #2: Buy vs. Lease Equipment Decision Tree
Build a decision tree to decide if your organization should purchase a brand-new technology or lease the technology.
The biggest concerns or risks with purchasing technology are the rapid changes that happen in technology and the low end-of-life value of technology. Therefore, there is a 40 percent chance that the leased equipment will have better contractual value at the end of the lease-period . Alternatively, there is an 85 percent chance that purchasing new technology will have a lower-than-expected value at the end of the project life. The cost for the technology, if leased, is $11,500, versus the cost of purchasing a new technology, which is $15,000.
- Use the information in the table below to decide whether you want to lease versus buy new technology.
- Create a decision tree to show outcomes for each decision node using the SilverDecisions website (http://silverdecisions.pl/SilverDecisions.html?lang=en (Links to an external site.)). Please note: while the SilverDecisions tool is intuitive, you can find a manual at the following site: http://silverdecisions.pl/ (Links to an external site.).
- Calculate expected value of each outcome and show your calculations (Probability X Impact).
- Export your decision tree as a png. file and save it on your computer.
- Explain the best option based on the outcome, and why.
Cost to buy a new technology: $15,000
Probability of having lower-than-expected value at the end of the project life: 85%
Probability of that the leased equipment will have better contractual value at the end of the lease-period: 40%
Cost of maintenance for the new equipment: $5,000
Cost of maintenance for the leased equipment: $2,500
