Why does Michael believe the shutdown will affect Soap Shops rate of return with the following estimates: (1) 40 percent chance of a 10-percent decrease; or a 60 percent chance of a 25-percent decrease? Is he right or not? Please show calculations and formulas, and explain briefly the overall impact of the case.

Forensic Case:

"Soap Shop, an e-tailer, had its vendor website shut down for three days due to a denial of service attack. The companys vendor website is an auction-based system where vendors compete to supply specific products at the lowest price. As Soap Shop uses a JIT system, it could not fill orders on its retail website which remained open for customers orders during the two days. Michael, the controller, estimates the dollar value of the unfillable customers orders over the two-day period is $700,000. He believes that forty percent of those orders can be filled. The restoration and analysis labor costs of repairing the system are $220,000. The normal rate of return on sales for Soap Shop is 20 percent due largely to the internet auction systems used with vendors. The shutdown of the vendor site required the emergency purchase of soap and lotion products from higher-priced vendors and increased shipping costs that together totaled $200,000. Michael believes the shutdown will affect Soap Shops rate of return. He provides the following estimates: (1) 40 percent chance of a 10-percent decrease; or a 60 percent chance of a 25-percent decrease."