How much should be budgeted for each bridge in case of failure (see Chapter 10)? Costs and probabilities are as summarized in the table below. Assume that failure would occur in year 25. Use an annually compounding interest rate of 5%.
ABC
Conventional
Direct cost to the company if the bridge fails
$75,000,000
$225,000,000
Indirect cost to the company if the bridge fails (loss of goodwill)
$100,000,000
Probability of bridge failure
1/800
1/500
Please explain what the budget is and what its for!
Thank you!
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