Note this is a computational question. Note there are two parts in the question. Clearly type out your answers to each subpart of the question. Show your steps.

Star Inc asked you to evaluate their internal control systems. You believed that Star Inc. has serious flaws in their internal control system. You estimated that the impact associated with this problem is $10 million and that the likelihood is currently 9%. Three procedures can be used to deal with this problem. Procedure A would cost $300,000 and reduce the likelihood to 5%; procedure B would cost $400,000 and reduce the likelihood to 3%. If both procedures were implemented, likelihood would be reduced to 1%.

a. What is the estimated expected loss associated with ABC Corporations internal control problem before any new internal control procedures are implemented? ( 5 points)

b. Determine which procedure should be implemented. Use computation to support your answer. (15 points)