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6. Assume that if Amazon has not transferred risk associated with a product liability lawsuit, the firm will have to seek external capital to pay for losses (i.e. Amazon has insufficient internal funds to cover the entire cost of the lawsuit). If sued, Amazon will take out a loan for the entire $50 million, and legal and administrative costs will equal $1,000,000. a. Should Amazon purchase $50 million of insurance coverage for a premium $2,550,000? Explain. b. Would the tax status of premiums affect your answer to part (a)? Explain. 7. Having completed an analysis of how risk management adds value to the company, Amazon (Ring)'s risk manager further reasons that there is an additional benefit to corporate risk management. The risk manager makes the following argument: "An additional benefit to insurance not considered here is that risk averse investors would be more willing to invest in Amazon if it is insured against product liability losses because the purchase of insurance reduces the company-specific risk. This increased demand for Amazon stock will further increase shareholder value beyond the $40 million that will go to shareholders if no product liability lawsuit is lost. Explain the flaw in the risk manager's logic