The owner and manager of Smartwear realized that the company is facing an internal control issue which can be remedied using advanced technology. The IT consultant estimates that the impact associated with this problem is $2 million and that the likelihood of this occurring is 3%. The two mutually exclusive IT projects have been proposed to deal with this problem. IT projects a would cost $30,000 and reduce the likelihood to 1.5%, while It projects B would cost $40,000 and reduce the likelihood to 1%. If both procedures were implemented, the likelihood would be reduced to 0.1%
A) What is the estimated expected loss associated with the Smartwear internal control problem before new internal procedures are implemented?
B) compute the revised estimates of expected loss if IT projects A were implemented, if IT projects B were implemented, and if both projects were implemented?