**Answer:**

<h3>Benzion Barlev of New York University</h3>

NEGOTIATION OF A LONG-TERM CONSTRUCTION CONTRACT

a. The probability that the contract will be profitable for the contractor is:

**= 81%**

b. The probability that the project will result in a loss for the contractor is:

**= 19%**

c. The value of R that the contractor should strive for in order to have a .99 probability of making a profit is:

**= $1,246,100.**

**Explanation:**

a) Data and Calculations:

Mean total cost (x) = $850,000

Standard deviation = $170,000

Revenue = $1,000,000

Probability of being profitable = (R - x)/std deviation

= ($1,000,000 - $850,000)/$170,000

= $150,000/$170,000

= 0.882

From Z table, 0.882 = 0.81057 = 81%

Probability of loss = 19% (100 - 81%)

To have a 99% (0.99) probability of making a profit, Z value = 2.33 from the Z table:

(R - x)/std deviation = 2.33

(R - x) = 2.33 * $170,000

= $396,100

(R - $850,000) = $396,100

R = $396,100 + $850,000

R = $1,246,100