ABC Company estimates that the annual dollar loss that would occur should a destructive fire take place is -$1,000,000. The company also estimates that the annual possibility that the fire will occur is 6%.

The company decides to buy insurance. It would pay $2000 annually for a $30,000 fire insurance policy. The company also would install a sprinkler system with a 5-year annualized cost (NPV) of $8,000 each year. The sprinkler system would lower the possibility of fire to 4%. What is the expected residual risk of the fire after both the insurance and the sprinkler system?