Twenty-five thousand messages arrive at an organization each year. Currently there are no firewalls. On the average there are 1.2 successful hackings each year. Each successful hacking results in loss to the company of about $130,000.
A major firewall is proposed at a cost of $66,000 and a maintenance cost of $5,000. The estimated useful life is 3 years. The chance that an intruder will break through the firewall is 0.0002. In such a case, the damage will be $100,000 (30%) or $200,000 (50%), or no damage. There is annual maintenance cost of $20,000 for the firewall.
a. Should management buy the firewall?
b. An improved firewall that is 99.9988 percent effective costs $84,000, with a life of 3 years and annual maintenance cost of $16,000, is available. Should this one be purchased instead of the first one?