ABC Pest Control is in the business of providing services for all aspects of pest management in residential, commercial, industrial and institutional settings. ABC Pest Control provides general pest management, termite control, rodent control and real estate inspections. ABC Pest Control owns and utilizes 3 service vehicles. On June 20, YR-1, one of ABC Pest Control's service vehicles was involved in an automobile accident. The service vehicle was out of service from the date of the accident through the date that it was placed back in service, July 19, YR-1. During the downtime the service vehicle was being repaired. The two other vehicles remained in service and the business continued to operate at a lesser capacity. There is an office staff and three drivers/servicemen. The loss period is from 06/20/YR-1 to 07/19/YR-1 (1 Month); calculate the lost income and the continuing expenses during the downtime. You must present your findings in class as well as hand in all recreated schedules and assumptions relied on. Please note the following assumptions and guidance: Calculate the Business Interruption value (Enclosure a). Note that those expenses that are "fixed" continue. Those expenses that are "variable" must be examined. Use your judgment for each expense line item deeming it either "fixed" or "variable"; for variable expenses you can either disallow completely or pro-rate the expense. Provide justification for all expenses continued/discontinued - See additional assumptions on Enclosure (d). Calculate the gross receipts lost during the period of interruption to the business utilizing the information provided on enclosure (b). Remember, projected income during the period of interruption has to be reduced by actual income earned; provide justification for all assumptions and calculations.

ABC Pest Control Income Statement YR-0 As a % of Gross Receipts Continuing Expenses as a % of Gross Receipts Gross Receipts 313,291$ 100.00% Cost of Goods Sold 65,010 20.75% Gross Profit 248,281$ 79.25% Expenses: Salaries - Office 15,896 5.07% Salaries - Drivers 41,286 13.18% Rents 11,333 3.62% Licenses 10,661 3.40% Depreciation 3,650 1.17% Advertising 38,589 12.32% Auto & Truck Expense 16,665 5.32% Bank Charges 1,829 0.58% Dues & Subs 300 0.10% Gifts 104 0.03% Insurance 7,637 2.44% Internet 608 0.19% Legal & Professional 2,780 0.89% Meals & Entertainment 1,041 0.33% Miscellaneous 909 0.29% Office Expenses 630 0.20% Payroll Services 988 0.32% Telephone 10,050 3.21% Tolls Parking 10,522 3.36% Training 1,200 0.38% Uniforms 643 0.21% Utilities 3,600 1.15% Total Expenses: 180,921$ 57.75% Net Profit 67,360$ 21.50% Business Interruption Value - Net Profit plus Continuing Expenses: 0.00% Enclosure (a)

Income Data per General Ledgers Period Gross Receipts 04/20/YR-0 to 05/19/YR-0 34,580.25$ 05/20/YR-0 to 06/19/YR-0 29,143.15$ 06/20/YR-0 to 07/19/YR-0 32,861.70$ 04/20/YR-1 to 05/19/YR-1 37,302.00$ 05/20/YR-1 to 06/19/YR-1 30,677.00$ 06/20/YR-1 to 07/19/YR-1 14,781.00$ Note: Examples for calculating projected sales: Enclosure (b) One method of projecting sales for a short term loss period may be based on historical income trends (year over year growth rates should be considered as well as period averages). (1) Compare sales from 04/20/YR-1 to 06/19/YR-1 to sales from 04/20/YR-0 to 06/19/YR-0. Apply the growth rate to sales from 06/20/YR-0 to 07/19/YR-0 to see the expected level of sales during the downtime. (2) Calculate the average sales during the period immediately preceding the downtime (04/20/YR-1 to 06/19/YR-1) and rely on that monthly average as the expected level of sales during the downtime. (3) Rely on the sales that were experienced during the same period as that of the loss period but the prior year.

Ref Lost Gross Receipts -$ Enclosure (b) Multiplied by Business Interruption Value 0.00% Enclosure (a) Loss Due to Business Interruption -$ ABC PEST CONTROL SUMMARY LOSS Enclosure (c)

(1) Despite the downtime, the entire office staff continued to work and operate the business. (2) Due to the downtime the driver was NOT paid during the business interruption. (3) The rent and utilities expense is specifically for office space; therefore the expenses are fixed. (4) The licenses are required and based on fixed fees; therefore the expense is fixed. (5) The vehicles are fully depreciated; the depreciation expense is related to computer equipment and office fixtures that remain in use. (6) ABC Pest Control has various annual contracts to advertise with YellowBook, local Comcast channels and the Star Ledger. The ads are pre-paid and will run despite the downtime. (7) The vehicles are fully depreciated; the auto and truck expense is a variable expense that relates to repairs and other types of vehicle maintenance. If the vehicle is down, the variable expense is not incurred. (8) The bank charges fixed service fees despite the increase/decrease in activity in the accounts. (9) Dues and Subs represent annual magazine subscriptions and club dues that are prepaid and fixed despite any downtime. (10) Gifts, Entertainment and miscellaneous expenses are all discretionary charges that can be curbed due to lesser activity resulting from the downtime. (11) The annual insurance premiums are prepaid and fixed despite any downtime. (12) Internet and telephone expense is a fixed fee based on ABC's contracts; ABC never exceeds the allotted time/usage therefore the charge is fixed despite the downtime (13) ABC's accountant and attorney charge a fixed quarterly fee to prepare the company books and provide any necessary legal advice whether or not the service is called upon; therefore the legal & professional fees are fixed despite the downtime. (14) ABC's office expense such as supplies, postage, etc., is reduced by 10% due to the limited operations during the downtime. (15) The payroll company charges a fixed fee to prepare payroll; the fee only changes if they have to process additional payroll, NOT if they have to process LESS payroll. (16) Tolls and parking expense are variable expense incurred during the operation of the vehicles. If the vehicle is down, the variable expense is not incurred. (17) No new employees are hired therefore the training expense and cost of new uniforms is not incurred during the downtime. (18) Cost of goods sold include everything from running the vehicles (oil, diesel etc.) to the materials and supplies necessary to perform the service of controlling pests. Cost of goods sold is absolutely a variable cost that is not incurred if the service is not performed. Enclosure (d)

f. Business Income Business income means that: Enclosure (e) (ii) Continuing normal operating expenses incurred, including payroll. Variable expenses that do not continue are not remunerated as the purpose of the coverage is not to place the insured better off than had the loss not occurred. i.e., cost of goods sold CANNOT continue if there are no goods to be sold. (i) Net Income (Net profit or loss before income taxes) that would have been earned or incurred if no physical loss or damage had occurred, but not including any Net Income that would likely have been earned as a result of an increase in the volume of business due to favorable business conditions caused by the impact of the Covered Cause of Loss on customers or on other businesses; and: BUSINESS OWNERS SPECIAL PROPERTY COVERAGE FORM BUSINESS OWNERS BP 00 02 12 99 Various provisions in this policy restrict coverage. Read the entire policy carefully to determine rights, duties and what is not covered. Throughout this policy the words "you" and "your" refer to the Named Insured (ABC Pest Control). The words "we", "us" and "our" refer to the Company providing the insurance. We will pay for the actual loss of Business Income you sustain due to the necessary suspension your "operations" during the "period of restoration". The suspension must be caused by direct physical loss of or damage to property at the described premises. The loss or damage must be caused by or result from Covered Cause of Loss. We will only pay for loss of Business Income that you sustain during the "period of restoration" and that occurs within 12 consecutive months after the date of direct physical loss or damage. We will only pay for ordinary payroll expenses