ProTrain is a training company that specializes in leadership and team-building programs. Recently, ProTrain hired Rico Du, a business graduate, as a general manager in hopes of expanding its business. Rico learned a lot about risk management in school and believes that managers need to have sufficient training in risk management. He gathers the fi nancial information for the two types of existing training programs from the accounting department:

Revenue…………………….....$550,000

Cost of Delivery ……………. 357,500

Gross Margin………………….192,500

Marketing……………………......82,500

Administration……………… ...44,000

Operating Income…………..$66,000

He estimates that the new risk management program will generate revenue of $150,000, of which 72% is the cost of delivery. Marketing expenses will be 20% of the revenue; however, he expects that administration expenses will remain the same.

REQUIRED

A. Identify the relevant information for adding the new risk management program to the existing business.
B. Will the new risk management program add value to the existing business? If so, how much operating income will this new program add to the existing operating income?
C. What are the possible biases that Rico may have when he estimates the fi nancial information for the risk management program?
D. If you were Rico’s boss, what additional information that you would like Rico gather in order to control for his biases?