Twenty-five thousand messages arrive at an organization each year. Currently, there are no firewalls. On average, 1.2 successful hackings occur each year. Each successful hack attack results in a loss of about $130,000 to the company. A major firewall is proposed at a cost of $66,000 and a maintenance cost of $5,000. The estimated useful life is 3 years. The chance that an intruder will break through the firewall is 0.0002. In such a case, the damage will be $100,000 (30%), or $200,000 (50%), or no damage. There is an annual maintenance cost of $20,000 for the firewall.

a. Should management buy the firewall?

b. An improved firewall that is 99.9988 percent effective and that costs $84,000, with a life of 3 years and annual maintenance cost of $16,000, is available. Should this firewall be purchased instead of the first one?