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%. ABCConventionalDirect cost to the company if the bridge fails$75,000,000$225,000,000Indirect cost to the company if the bridge fails (loss of goodwill)$100,000,000$75,000,000Probability of bridge failure1/8001/500 Please explain what the budget is and what its for! Thank you!

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Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter16: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 18E: Carmichael Corporation is in the process of preparing next years budget. The pro forma income...

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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	$75,000,000
Probability of bridge failure	1/800	1/500

Please explain what the budget is and what its for!

Thank you!

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