6. Conrad works for Harrington LLP whose end of year cash flow is $50 million with a probability 0.90 and $0 with a probability 0.10. When the cash flow is $0, then Conrad does not get paid. As a result, Conrad would accept $75,000 in compensation if he were certain to be paid. In case he is uncertain about getting paid, Conrad asks for $90,000. The company is deciding whether to buy a $100,000 liability insurance to assure Conrad's salary payment with an insurance premium of $5,000. Should Harrington LLP buy the policy? For simplicity, assume the cost of capital for the firm to be 0. 7. DameStop Corp. has assets in place that's worth $500 million. It also has intangible assets worth $100 million, making the total value of the firm $600 million. Because the company locates in a flood zone, there is a 10% chance that the company's equipment is badly damaged and the firm is bankrupt. DameStop is deciding whether to purchase a flood insurance to insure equipment damage losses. Liberty Insurance, the major insurance company in the region, offers a policy charging a 30% loading. As DameStor Corp's risk manager, will you buy the insurance from Liberty Insurance based on firm value maximization principle? He 8. The marginal tax rate of a firm is displayed as below: Taxable Income Tax rate $0-$5 10% $5 - $10 20% $10 - 30% A firm has its taxable income as the following: Probability Pre-tax income 0.4 $10m 0.6 $30m (1) Assume the company could purchase a zero-loading insurance policy. How much tax saving by purchasing the insurance policy? (2) What if the insurance policy has a 30% loading