BU353 - Introduction to Risk Management and Insurance Loss Control Capital Budgeting Assignment 20 marks. This insurance assignment is to be completed in a group of two students. Individual assignments will not be accepted. The assignment must be submitted electronically via dropbox in either word or pdf format. 2 marks will be assigned for formatting. Groups must show / explain their work to earn full marks. Sandeep Singh is the risk manager for FoodCo Group. FoodCo Group is responsible for delivering supplies to restaurants throughout the GTA and southwestern Ontario. Their fleet of trucks consists of 40 smaller cube vans and 10 larger trucks. Sandeep has examined the past accident history for the fleet and has gathered the following auto accident statistics: Expected Loss Per Cube Van Expected #Incidents Per Year per vehicle Expected Loss Per Larger Truck 1 200 700 0.25 700 1500 0.05 8000 12,000 0.01 19,000 25,000 .0005 40,000 100,000 Sandeep Singh is considering the installation of governors in every vehicle. According to research, installing governors reduces the expected severity of an accident by 15% and reduces the frequency of losses by 10%. Currently FoodCo Group pays $61,000 annually for auto insurance and has a $1000 deductible per loss. If they install governors in each vehicle and provide annual safety courses to their drivers, their insurer has offered them a new premium of $48,800 with the same deductible. Each governor costs $600 and has an expected life of 5 years. At the end of years 1 through 4, each governor will have to be recalibrated and cleaned and the cost for this is $100 per vehicle. Governors can be depreciated on a straight line basis The total cost of the safety course, which must be completed within the first 2 weeks of every year, is $10,000 for the first year, but the price falls to $5000 for the remaining years of the contract. FoodCo Group's tax rate is 34%, and its cost of capital is 10%. a) (2 marks) Before the governors are installed, what are the total expected annual losses arising from auto accidents? b) (3 marks) Before the governors are installed, what is FoodCo Group's expected annual retention? c) (3 marks) If FoodCo Group installs the governors, what are total expected annual losses arising from auto accidents? d) (2 marks) If FoodCo Group installs the governors, what is FoodCo Group's expected annual retention? e) (8 marks) Should FoodCo Group implement this risk management plan? P