Assume that the daily probability of a major earthquake in Los Angeles is 0.07 percent. The chance that your computer centre will be damaged during such a quake is 5 percent. If the centre is damaged, the estimated damage to the computer centre will be $4.0 million.

a. Calculate the expected loss in dollars.

b. An insurance agent is willing to insure your facility for an annual fee of $25,000. Analyze the offer, and discuss whether to accept it.