Answered: What would it cost an insurance company…

What would it cost an insurance company to replace a business's office equipment that originally cost $25,000? The replacement costs for the equipment have increased by 20 percent.

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter15: Decision Analysis

Section: Chapter Questions

Problem 20P: Alexander Industries is considering purchasing an insurance policy for its new office building in...

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Alexander Industries is considering purchasing an insurance policy for its new officebuilding in St. Louis, Missouri. The policy has an annual cost of $10,000. If Alexander Industriesdoesn’t purchase the insurance and minor fire damage occurs, a cost of $100,000is anticipated; the cost if major or total destruction occurs is $200,000. The costs, includingthe state-of-nature probabilities, are as follows: a. Using the expected value approach, what decision do you recommend?
A certain factory building has an old lightingsystem. Lighting the building currently costs, on average, $20,000 a year. A lighting consultant tells thefactory supervisor that the lighting bill can be reducedto $8,000 a year if $50,000 is invested in new lightingin the building. If the new lighting system is installed,an incremental maintenance cost of $3,000 per yearmust be taken into account. The new lighting systemhas zero salvage value at the end of its life. If the oldlighting system also has zero salvage value, and thenew lighting system is estimated to have a life of 20years, what is the net annual benefit for this investment in new lighting? Take the MARR to be 12%.Assume the old lighting system will last 20 years.6.43 Your company needs a machine for the nextseven years, and you have two choices (assume anannual interest rate of 15%).• Machine A costs $100,000 and has an annual operating cost of $47,000. Machine A has a useful lifeof seven years and a salvage value of…
Alexander Industries is considering purchasing an insurance policy for its new office building in St. Louis, Missouri. The policy has an annual cost of $10,000. If Alexander Industries doesn’t purchase the insurance and minor fire damage occurs, a cost of $100,000 is anticipated; the cost if major or total destruction occurs is $200,000. The costs, including the state-of-nature probabilities, are as follows: Using the expected value approach, what decision do you recommend? What lottery would you use to assess utilities? (Note: Because the data are costs, the best payoff is $0.) Assume that you found the following indifference probabilities for the lottery defined in part (b). What decision would you recommend? Do you favor using expected value or expected utility for this decision problem? Why?
An auto repair company needs a new machine that will check for defective sensors. The machine has an Initial investment of $224,000. Incremental revenues, including cost savings, are $120,000, and Incremental expenses, including depreciation, are $50,000. There is no salvage value. What is the accounting rate of return (ARR)?
You have a homeowner's policy with $120,000 coverage, a $1,000 deductible, and required coverage of 80 percent of the replacement cost. Their home recently suffered extensive fire damage in the amount of $92,000. Assuming the replacement value of the home was $160,000, how much will the insurance company pay on this loss? O $73,600 $68,000 $86,250 $85,300 $92,000
Eddie’s Precision Machine Shop is insured for $700,000. The present yearly insurance premium is $1.00 per $100 of coverage. A sprinkler system with an estimated life of 20 years and no salvage value can be installed for $20,000. Annual maintenance costs for the sprinkler system are $400. If the sprinkler system is installed, the system must be included in the shop’s value for insurance purposes, but the insurance premium will reduce to $0.40 per $100 of coverage. Eddie uses a MARR of 15 %/year. Solve, a. What is the present worth of this investment? b. What is the decision rule for judging the attractiveness of investments based on present worth? c. Is the sprinkler system economically justified?
auto repair company needs a new machine that will check for defective sensors. The machine has an initial investment of $224,000. Incremental revenues, including cost savings, are $120,000, and incremental expenses, including depreciation, are $50,000. There is no salvage value. What is the accounting rate of return (ARR)? NOTE: Enter numbers with two decimals (e.g., 33.44 or 20.00) ng question % Next page
Your firm spends $488,000 per year in regular maintenance of its equipment. Due to the economic downturn, the firm considers forgoing these maintenance expenses for the next 3 years. If it does so, it expects it will need to spend $1.9 million in year 4 replacing failed equipment. a. What is the IRR of the decision to forgo maintenance of the equipment? b. Does the IRR rule work for this decision? c. For what costs of capital (COC) is forgoing maintenance a good decision?
Your firm spends $447,000 per year in regular maintenance of its equipment. Due to the economic downturn, the firm considers forgoing these maintenance expenses for the next 3 years. If it does so, it expects it will need to spend $1.9 million in year 4 replacing failed equipment. a. What is the IRR of the decision to forgo maintenance of the equipment? b. Does the IRR rule work for this decision? c. For what costs of capital (COC) is forgoing maintenance a good decision?
12. During 2020, Thor Lab supplied hospitals with a comprehensive diagnostic kit for P1,200. At a volume of 8,000 kits, Thor had fixed costs of P1,000,000 and a profit before income taxes of P200,000. Due to an adverse legal decision, Thor's 2021 liability insurance increased by P1,200,000 over 2020. Assuming the volume and other costs are unchanged, what should the 2021 price be if Thor is to make the same P200,000 profit before income taxes? e. None of these; a. P1,200 b. P1,350 c. P1,500 d. P2,400 answer is
Your firm spends $498,000 per year in regular maintenance of its equipment. Due to the economic downturn, the firm considers forgoing these maintenance expenses for the next 3 years. If it does so, it expects it will need to spend $2.1 million in year 4 replacing failed equipment. a. What is the IRR of the decision to forgo maintenance of the equipment? b. Does the IRR rule work for this decision? c. For what costs of capital (COC) is forgoing maintenance a good decision? a. What is the IRR of the decision to forgo maintenance of the equipment? The IRR of the decision is%. (Round to two decimal places.)
Your firm spends $469,000 per year in regular maintenance of its equipment. Due to the economic downturn, the firm considers forgoing these maintenance expenses for the next 3 years. If it does so, it expects it will need to spend $2.2 million in year 4 replacing failed equipment. a. What is the IRR of the decision to forgo maintenance of the equipment? b. Does the IRR rule work for this decision? c. For what costs of capital (COC) is forgoing maintenance a good decision? a. What is the IRR of the decision to forgo maintenance of the equipment? The IRR of the decision is ☐ %. (Round to two decimal places.)