This is the question: Suppose the probability a plant is destroyed in year 1 is 2% and the probability a plant is destroyed in year 2 assuming it was not destroyed previously is 4%. When the plant is destroyed, it would cost $147782 to replace. Assumed the interest rate is 5%, what is the expected replacement cost, round to nearest dollar?
I've tried the summation of y1 expected value and y2 expected value, then for each year at a 5% discount, my work is shown below:
