Cooper Movie Studio Corp. makes movies and is interested in lowering its operating costs for the following year, while maintaining the high quality and appeal of its movies. Cooper's management is concerned about the additional costs the company would have to incur if new industry regulation is passed by Congress. The chart at the top of the next page contains a description of this top risk, an inherent risk assessment, three risk response alternatives, and a residual risk assessment for each response alternative.

Finally, Cooper's management accountants estimate that the incremental cost of implementing risk response A is $3,000,000 and the incremental cost of implementing risk response B is $13,000,000.
Required:
1. Calculate the inherent risk for Cooper.
2. Calculate the residual risk for Cooper associated with each of the three risk response alternatives A, B, and C.
3. Calculate the benefit for Cooper associated with each of the three risk response alternatives A, B, and C.
4. Calculate the net benefit for Cooper associated with each of the three risk response alternatives A, B, and C.
5. Using net benefit as the criterion, which risk response should Cooper choose to implement?

Transcribed Image Text:

Inherent Risk Risk Response Residual Risk Impact (on operating (on operating Risk Likelihood costs Alternatives Likelihood costs Poor behavior by others in the industry results in Congress passing costly new legislation that regulates the behavior of all movic studios. A-Share Cooper's effective marketing processes with competitors to help mitigate poor industry behavior B-Lobby Congress on behalf of the movic industry generally and 30% $80,000,000 20% $80,000,000 15% $50,000,000 C-Take no action in response to possible new 30% $80,000,000