A-Z Technologies, a manufacturer of amplified pressure transducers, is trying to decide between a dual-speed and a variable-speed machine. The engineers are not sure about the salvage value of the variable speed machine, so they have asked several different used-equipment dealers for estimates. The results can be summarized as follows: there is a 35% chance of getting $18,000, a 41% chance of getting $24,000, and a 13% chance of getting $29,000. Also, there is an 11% chance that the company may have to pay $5000 to dispose of the equipment. Calculate the expected salvage value.
What will be an ideal response?
E(X) = 18,000(0.35) + 24,000(0.41) + 29,000(0.13) + 0.11(-5,000)
= $19,360
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