Question 2 (10 Marks)
(a) A company is contracted to finish a [tex]$100,000 project by 31st December. If it does not complete on time, a penalty of $[/tex]8,000 per month or part of a month is incurred. The company estimates that
if it continues alone there will be a 40 per cent chance of completing on time and that the project
may be one, two, three or four months late with equal probability. Subcontractors can be hired by
the firm at a cost of $8,000. If the subcontractors are hired, then the probability that the company
completes on time is doubled. If the project is still late it will now be only one or two months late
with equal probability.
Determine the expected profits when
(i)
Subcontractors are not used
(2 Marks)
(ii)
Subcontractors are used
(2 Marks)
Giving a reason, suggest the better option for the company
(1 Marks)
1200
e CHC L
​