Derive the after-tax loss matrix for the firm

Assignment Help Finance Basics

Reference no: EM132172435

Question - A firm has the following probability distribution for annual losses due to vandalism. All amounts are before any tax consideration. The firm has a tax rate of 20%.

Annual Losses	Probability
$0	0.75
$4,000	0.20
$10,000	0.05

The firm is considering three options:

1. Retention

2. Deductible insurance, Face amount = $10,000, Deductible = $300, Premium = $1300

3. Full insurance, Face amount = $10,000, Premium = $1500

1. Derive the after-tax loss matrix for the firm.

2. If the risk manager's decision rule is to minimize after-tax expected cost, which option will she choose? Show why?

3. What worry value for retention would make the full insurance alternative preferable to retention? Be sure to explain your numerical answer.

4. What worry value or values would make deductible insurance preferred to retention? Be sure to explain your numerical answer.

Reference no: EM132172435

Questions Cloud

Identify at least three unhealthy cultures in that place : Identify at least three unhealthy cultures in that place. And list out three consequences of such unhealthy cultures.

What is the largest lower bound for this type of option : Your client is also considering buying an American option with the same strike price. What is the largest lower bound for this type of option

Create flowchart of any process : Create a Flowchart of any process and then try to improve that process.

Require the use of quotation marks : In regards to APA format. Direct quotations of any length are included within the paragraphs and require the use of quotation marks.

Derive the after-tax loss matrix for the firm : A firm has the following probability distribution for annual losses due to vandalism. Derive the after-tax loss matrix for the firm

Describe a health care provider with which you are familiar : Describe a health care provider with which you are familiar and discuss the function and flows that needs to be performed by that provider's marketing channel.

Create in its worldwide manufacturing facilities : What kind of culture that Whirlpool was trying to create in its worldwide manufacturing facilities?

Research paper - internet use and well-being among students : Prepare research paper - Internet Use and Well-Being Among College Students: Beyond Frequency of Use by Cheryl F. Gordon Linda P. Juang Moin Syed

Airtran acquisition make good strategic sense for southwest : What’s your understanding of the two core values of Southwest? Does the AirTran acquisition make good strategic sense for Southwest?

User Account

All Pages