Scenario 5.8: Risk-Neutral Icarus Airlines Must Commit Now to Leasing 1, 2

Multiple Choice

Scenario 5.8:
Risk-neutral Icarus Airlines must commit now to leasing 1, 2, or 3 new airplanes. It knows with certainty that on the basis of business travel alone, it will need at least 1 airplane. The marketing division says that there is a 50% chance that tourism will be big enough for a second plane only. Otherwise, tourism will be big enough for a third plane. This, plus revenue information, yields the following table:
Planes Tourism Revenue Expected
Leased Light Heavy Profit
2 $90 million $30 million $60 million
3 $10 million $140 million $75 million
-Refer to Scenario 5.8. Without additional information, Icarus Airlines would

A) lease only the one airplane it is sure it can use.
B) lease 2 airplanes in order to guarantee it avoids the worst outcome, $10 million.
C) lease 3 airplanes because $140 million is greater than $90 million.
D) lease 3 airplanes because $75 million is greater than $60 million.
E) lease 3 airplanes because heavy tourism is more likely than light tourism.