Investing in equipment, maxes and mins. Shawn Overgrowth, whom we met in Exercise 27, is an entrepreneur who is optimistic about the growing season. What choice should he make to maximize his return? His assistant, Lance Broadleaf, is very conservative, and argues that KickGrass should minimize their potential downside results. Which alternative decision does he argue for?

Exercise 27

Investing in equipment. KickGrass Lawn care 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 purchase 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 existing 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 $5000 in a bad one. And if he spends nothing, he won’t expand his business. In a bad year, his income would contract by about $1000. Construct a payoff table and tree diagram for Shawn’s decision. Don’t forget to include his expenses in the calculations.