A construction company is planning to undertake a new project that has a potential profit of $1 million. However, the project is risky due to the uncertain market conditions, and there is a 25% chance that the project may not be successful, resulting in a loss of $500,000. The company has the option to purchase insurance that will cover any losses incurred due to the project failure. The cost of insurance is $150,000. Should the company purchase insurance, and what is the expected value of the project with and without insurance?

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The detailed answer for the above question is provided below To calculate the expected value of the project without insurance we need to use the follo... View the full answer