Suppose That the Manager of a Company Has Estimated the Probability

Multiple Choice

Suppose that the manager of a company has estimated the probability of a super-event sometime during the next three years that will disrupt all suppliers as 2%. In addition, the firm currently uses four suppliers for its main component, and the manager estimates the probability of a unique-event that would disrupt one of them sometime during the next three years to be 10%. Supplier management costs during this period are $30,000 per supplier. The financial cost incurred if all four suppliers are disrupted at the same time is estimated to be $10,000,000. What is the expected monetary value (cost) of the current supplier diversification arrangement?

A) $320,980
B) $415,680
C) $10,120,000
D) $318,568
E) $8,240,000