Assume the owner of salvage company is considering raising sunken ship. If successful, the venture will yield net profit of $10 million. Otherwise, the owner will lose $4 million. Let p denote probability of success for this venture. Suppose the owner is willing to take the risk to go ahead with this project provided expected net profit is at least $500,000.
a. If p = .40, find the expected net profit. Will the owner be willing to take the risk with this probability of success?
b. Determine the smallest value of p for which the owner will take the risk to undertake this project?