Question

Suppose the owner of a salvage company is considering raising a sunken ship. If successful, the venture will yield a net profit of $10 million. Otherwise, the owner will lose $4 million. Let p denote the probability of success for this venture. Assume the owner is willing to take the risk to go ahead with this project provided the expected net profit is at least $500,000.
a. If p = .40, find the expected net profit. Will the owner be willing to take the risk with this probability of success?
b. What is the smallest value of p for which the owner will take the risk to undertake this project?


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  • CreatedAugust 25, 2015
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