Answer (C) is correct . Each outage costs $800, but this expense can be avoided by paying $1,000 per month ($12,000 for the year). The expected-value approach uses the probability distribution derived from past experience to determine the average expected outages per month. ? 3 ¡Â 12 ¡Á 0 = 0.0 2 ¡Â 12 ¡Á 1 = 0.16667 4 ¡Â 12 ¡Á 2 = 0.66667 3 ¡Â 12 ¡Á 3 = 0.75000 1.58334 The company can expect to have, on average, 1.58334 outages per month. At $800 per outage, the expected cost is $1,266.67. Thus, paying $1,000 to avoid an expense of $1,266.67 saves $266.67 per month, or $3,200 per y
Answer (A) is incorrect because The annual amount the company will lose without a generator is $(15,200).
Answer (B) is incorrect because The monthly amount the company will lose without a generator is $(1,267).
Answer (D) is incorrect because The savings amount if two outages occur per month is $7,200.
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Each power outage results in out-of-pocket costs of $800. For $1,000 per month, Wilder can lease a generator to provide power during outages. If Wilder leases a generator in the coming year, the estimated savings (or additional expense) for the year will be