The property restoration company PuroServ is considering switching to new dehumidifiers. Their market research, considering the cost of the new machines and their efficiency, tells them that the switch would give them a 54% chance of making a $20,000 profit, a 23% chance of breaking even, and a 23% chance of losing $5,000. How much money does PuroServ expect to make with their new purchase?
Not sure what to do with this one....
expected value= SUM value*probabilities
= .54*20,000+.23*0 + .23(-5000)
so PuroServ expects to make $9,650 with their new purchase?
To calculate the expected profit for PuroServ with their new purchase, we need to multiply the probability of each outcome (profit, break-even, loss) by their respective amounts, and then sum up the results.
Given:
- Chance of making a $20,000 profit: 54%
- Chance of breaking even: 23%
- Chance of losing $5,000: 23%
Step 1: Calculate the expected profit for each outcome:
- Profit: $20,000 × 0.54 = $10,800
- Break-even: $0 × 0.23 = $0
- Loss: ($5,000) × 0.23 = ($1,150)
Step 2: Sum up the expected profits:
Expected Profit = $10,800 + $0 + (-$1,150)
Expected Profit = $9,650
Therefore, PuroServ expects to make $9,650 with their new purchase.