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....
To determine how much money PuroServ expects to make with their new purchase, we need to calculate the expected value. The expected value is the sum of each possible outcome multiplied by its probability.
In this case, PuroServ has three possible outcomes with their respective probabilities and profits/losses:
1. 54% chance of making a $20,000 profit (probability = 0.54, profit = $20,000).
2. 23% chance of breaking even (probability = 0.23, profit = $0).
3. 23% chance of losing $5,000 (probability = 0.23, loss = -$5,000).
To calculate the expected value, we multiply each outcome by its respective probability and sum them up:
Expected Value = (0.54 * $20,000) + (0.23 * $0) + (0.23 * -$5,000)
Simplifying the equation:
Expected Value = $10,800 + $0 + (-$1,150)
Therefore, PuroServ expects to make $10,800 - $1,150 = $9,650 with their new purchase.