A construction company is planning to build a new office building. The total cost of the project is estimated to be $15,000,000. However, there is a risk of cost overruns due to unforeseen circumstances such as material shortages and labor strikes. The project manager estimates that there is a 25% chance of a cost overrun of $2,000,000, and a 10% chance of a cost overrun of $4,000,000. The company wants to determine the expected cost of the project and the probability of a cost overrun.

a) Calculate the expected cost of the project.

b) Calculate the probability of a cost overrun.

Show all calculations and express your final answers in dollars and percentages, respectively. (20 marks)

Answer rating: 100% (QA)

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