A manufacturing company is considering launching a new product line. The initial investment required to set up the production line is $500,000. The company estimates that there is a 70% chance that the product will be successful and a 30% chance that the product will be unsuccessful. If the product is successful, the company will earn a profit of $800,000, but if it is unsuccessful, the company will lose $400,000. The company can purchase insurance against the risk of failure for a premium of $100,000. The insurance will pay out the full loss of $400,000 if the product fails. Should the company purchase the insurance?

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The detailed answer for the above question is provided below To analyze the investment decision we need to calculate the expected value and standard d... View the full answer