Al's "Suds & Duds" is a bar-laundromat combination located in College Town, USA. Al's caters to college students by offering them the opportunity to consume beer and watch TV while waiting for their clothes to wash and dry. To cover his business income and extra expense exposures, Al purchased a Business Income (And Extra Expense) Coverage Form (BIC) with a policy limit of $72,000. For each case below, indicate if the loss is covered and how much, if anything, the insurer will pay for it. Treat each situation separately. (You may ignore coinsurance and waiting periods unless otherwise indicated. You may also assume that the peril is covered).

1. Al expected to earn a net profit before taxes of $30,000 for the year following the inception date of the policy. (See annual income statement below). In general, the revenues for Al's business are earned, and the expenses are incurred, evenly throughout the year. On the first day of the year, Al's business was shut down after a tornado caused severe damage to his building. Al was able to discontinue $30,000 of his annual operating expenses, but the other $120,000, including the salaries for Al and his management staff, continued to be incurred in spite of the shutdown. Assuming a coinsurance percentage of 60%, how much of this business income loss will Al be able to collect under his BIC if business operations are suspended for three months? (Do NOT ignore coinsurance in this question).

REVENUES $240,000

COST OF GOODS SOLD $ 60,000

GROSS MARGIN $180,000

PAYROLL $ 90,000

OTHER OPERATING EXPENSES $ 60,000

NET PROFIT $ 30,000