Question

Acme Company has three identical manufacturing plants, one on the Texas Gulf Coast, one in southern Alabama, and one in Florida. Each plant is valued at $200 million. Acme's risk manager is concerned about the damage which could be caused by a single hurricane. The risk manager believes there is an extremely low probability that a single hurricane could destroy two or all three plants because they are located so far apart. What is the probable maximum loss associated with a single hurricane?

A) $0 million
B) $200 million
C) $400 million
D) $600 million

Answer 1

B) $200 million

Step-by-step explanation:

Since Acme's risk manager is concerned about the damage which could be caused by a single hurricane and he believes there is an extremely low probability that a single hurricane could destroy two or all three plants because they are located so far apart.

Extremely low probability implies NO probability for two or three plants, hence, no likelihood exists

The probable maximum loss associated with a single hurricane is the total cost of 1 plant - $200 million, assuming 100% probability