What is the maximum amount of money

Assignment Help Risk Management

Reference no: EM13208653

Suppose that the probability of an earthquake in Southern Illinois is 30%. Your are the owner of a company in Southern Illinois. If an earthquake occurs, you expect that the damage to your manufacturing facility is $20 million. If you reinforce your facility, the damage expected if an earthquake occurs will be lowered to $10 million. Reinforcing the facility will cost $3 million. In 70% of the places where and earthquake has occurred, a fault line was 1 mile or less away. However, 30% of the places where an earthquake has not occurred are also within 1 mile of a fault line. A seismic test can be conducted to precisely locate the nearest fault line to your facility. Suppose earthquakes are predicted based on the seismic test information;i.e., an earthquake is predicted if a fault line is 1 mile or less away, and no earthquake is predicted otherwise. What is the maximum amount of money you are willing to pay for the seismic test?

Reference no: EM13208653

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