A construction company is considering bidding on a project to build a new office building. The cost
Question:
A construction company is considering bidding on a project to build a new office building. The cost of the project is estimated to be $5 million, and the company will have to submit a bid that includes a profit margin of 20% on top of the cost. However, the company is uncertain about the final cost of the project due to the risk of cost overruns. There is a 40% chance that the project will be completed within the budget, and a 60% chance that there will be a cost overrun that will increase the cost by 25%. The company can purchase an insurance policy that will pay out the full cost of the cost overrun for a premium of $250,000. Should the company purchase the insurance?
Quantitative Methods for Business
ISBN: 978-0324651751
11th Edition
Authors: David Anderson, Dennis Sweeney, Thomas Williams, Jeffrey cam