Question: How much should be budgeted for each bridge in case of failure (see Chapter 10)? Costs and probabilities are as summarized in the table below.

  1. How much should be budgeted for each bridge in case of failure (see Chapter 10)? Costs and probabilities are as summarized in the table below. Assume that failure would occur in year 25. Use an annually compounding interest rate of 5%.

Please explain what the budget in this situation is and what it is used for! Thank you.

ABC

Conventional

Direct cost to the company if the bridge fails

$75,000,000

$225,000,000

Indirect cost to the company if the bridge fails (loss of goodwill)

$100,000,000

$75,000,000

Probability of bridge failure

1/800

1/500

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