ABC Company estimates that the annual dollar loss that would occur should a destructive fire take place

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ABC Company estimates that the annual dollar loss that would occur should a destructive fire take place is -$1,000,000. The company also estimates that the annual possibility that the fire will occur is 6%. The company decides to buy insurance. It would pay $2000 annually for a $30,000 fire insurance policy. The company also would install a sprinkler system with a 5-year annualized cost (NPV) of $8,000 each year. The sprinkler system would lower the possibility of fire to 4%. What is the expected residual risk of the fire after both the insurance and the sprinkler system?

Posted Date: Dec 07, 2021 04:55 PM

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ABC Company estimates that the annual dollar loss that would occur should a destructive fire take place

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