Determine whether the company should install power generator

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Reference no: EM131232718

The CEO of a high tech startup was concerned about the potential loss that might occur as a result of a catastrophic event such as a fire, flood, or tornado. The company estimated that the loss from one of these incidents could be as much as $120 million, including losses due to interrupted service and lost business. The company is considering is the installation of an emergency power generator at its operations headquarters. The cost of the emergency generator is $1,200,000, and if it is installed, no losses from this type of incident will be incurred. However, if the generator is not installed, there is a 20% chance that a power outage will occur during the next year. If there is an outage, there is a 0.10 probability that the resulting losses will be very large, or approximately $90 million in lost earnings, a 0.30 probability that the resulting losses will be moderately large, or approximately $15 million in lost earnings and a 0.60 probability of only slight losses of around $2 million. Using decision tree analysis, determine whether the company should install the new power generator.

Reference no: EM131232718

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