the property restoration company is considering switching to new degumidifiers. Their market research, considering the cost of the4 new machines and their efficiency, tells them that the switch would give them a 96% chance of making a $20,000 profit, a 1% chance of breaking even and a 3% cahnce of losing $5000.. how much money does they expect ot make with their new purchase
To calculate the expected profit, we need to multiply each possible outcome by its probability and sum them up.
Given:
- 96% chance of making a $20,000 profit
- 1% chance of breaking even
- 3% chance of losing $5,000
Now, let's calculate the expected profit:
Expected profit = (Probability of profit) * (Profit) + (Probability of breaking even) * (Profit) + (Probability of loss) * (Loss)
Expected profit = (0.96 * $20,000) + (0.01 * $0) + (0.03 * -$5,000)
Expected profit = $19,200 + $0 + (-$150)
Expected profit = $19,200 - $150
Expected profit = $19,050
Therefore, the company expects to make $19,050 with their new purchase.