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

Question

Quizplus · Accepted Answer

The probable maximum loss associated with a single hurricane is the value of the plant that could be destroyed, which is $200 million. The risk manager believes there is an extremely low probability that a single hurricane could destroy two or all three plants, so the total probable maximum loss is not $400 million or $600 million. The answer cannot be $0 million because the question assumes that damage could be caused by a single hurricane.

Acme Company Has Three Identical Manufacturing Plants,one on the Texas