Reference no: EM133080723

1. A proposed one-year wildfire protection program is meant to add anti-inflamation chemicals on trees to prevent sparks during storms. This (YL) would provide net benefits of $100 million if such fire prevention stops losses of property ($125 million in property damage avoided and $25 million in upfront costs (LC)). If there is no lightning storm (NL), the program would be associated with a -$25 million net benefits associated with the upfront costs and $0 million property damage avoided. In the county in the region there is a 35% probability of lightning strikes causing a massive fire with property damage. Net benefits also depend upon changes in the cost of chemicals to make the anti-inflamation product; the upfront costs have a 50% probability of rising by 100% in the next year (HC).

Calculate the expected net value of the wildfire protection program assuming the risks are either uncorrelated or uncorrelate. Explain your choice.