Memo To: John Alexander, Manager of Risk Management Department From: Judy Henry, Supervisor, Sales Department Date: February 20, 2006 Re: Best Burger __________________________________________________________________________________ As you may remember, Noble Fir Farm, Inc. (Noble Fir) has recently entered into one of our largest contracts yet with Best Burger (Burger), whereby Noble Fir is to supply and decorate a Christmas tree in each of Burgers one hundred and thirty-seven fast food restaurants in Gould each year in December. The first year of the contract was 2005. You undoubtedly remember the December 2, 2005 disaster. On that day one of the Christmas trees that we had delivered and decorated in early December to one of Burgers restaurants in Logan, Gould caught on fire. The fire then severely damaged the restaurants premises, including the kitchen and dining areas. Earlier today, I received an angry call from Oliver James, the president of Burger, updating me on the recent calculations of losses from the disaster. Our records indicate that the Christmas tree was delivered to Burgers Logan site on time and in good order on the morning of Friday, December 2nd, 2005. As the manager on site requested our delivery crew, they placed the tree inside the restaurant in an area next to the ordering counter. The crew then spent the next two hours, as they routinely do, decorating the tree to the satisfaction of the on-site manager, Noah Williams. Mr. Williams then initialed the receipt provided to him by our delivery crew, acknowledging receipt and full satisfaction from the decorated tree. Mr. Williams then fully paid for the tree and the services with a company check. The fire broke out inside the Logan restaurant just as the last employee was leaving at approximately 11:37 p.m. on December 2nd. Fortunately, there were no customers in the restaurant at that time as the store generally closes at 11:00 p.m. on weekdays. Mr. James indicated to me during the phone conversation that a report he received yesterday from the local fire department tentatively concluded that the fire originated from the Christmas tree. He went on to say that the report indicates that the lights on the tree required too much power for the one outlet they were plugged into, causing an electrical short. The spark from this instantly ignited the tree. The employee, who had been about to unplug the tree and turn off the lights in the restaurant, was so shocked that he instantly ran out of the restaurant. He then searched for a phone to call the fire department (in his haste he had left his cell phone inside). It took a few minutes to find a phone, giving the fire a chance to spread. Mr. James also said that as a result of the fire, the restaurant has been completely shut down for the past three months and that he does not expect the restaurant to be open for at least another three months pending complete renovation of the damaged areas. Mr. James then demanded compensation for the losses that Burgers restaurant sustained as a result of the fire. He faxed to me a copy of the construction bid Burgers restaurant accepted to reconstruct the premises, which came out to $464,900. In addition to the reconstruction costs, he also demands compensation for the potential profits the restaurant could have generated during the downtime. I am attaching the documents I asked him to fax me, which include some of Burgers financial data regarding revenues and expenses during 2004 and 2005. I told Mr. James that I sympathize with the lost profits sustained by the Logan Best Burger, but that according to the agreement we entered with Burger, Burger agreed to waive all claims against us for any consequential damages. After he quickly looked at the Purchase Order Acknowledgment, he said that while there was such a clause in the document, it was not part of the contract since Burger never agreed to it or signed it. I replied that I would look it over and get back to him soon.

Please answer: Before Ms. Henry replies to Mr. James, write an objective report to her (refer to the report guidelines on the Gateway web site), addressing the following questions. (Assume that the applicable precedent is from the fictional jurisdiction of the state of Gould).

Q. 1. Using MS Excel and the data given in the case: a. Create a histogram of the weekly operating profits from the prior year of operation, using 6 equal sized bins. What is the mode on the histogram? How would you define it? Which probability distribution does the histogram resemble? (You may wish to use the Excel file Noble Firs Case.xls at the Gateway web site.) b. What was the average weekly profit for the prior 12-month period? Determine and define the variance and standard deviation of weekly profit. c. How confident are you of this estimate? Calculate a 99% confidence interval for weekly profits, assuming that sigma is unknown. What does this tell you about weekly profits? d. Based on the above, what is the expected exposure on the lost profits claim?

BURGER FINANCIAL DATA FROM THE PRIOR YEAR OF OPERATION* Week Expenses Of 6-Dec-04 13-Dec-04 20-Dec-04 27-Dec-04 3-Jan-05 10-Jan-05 17-Jan-05 24-Jan-05 31-Jan-05 7-Feb-05 14-Feb-05 21-Feb-05 28-Feb-05 7-Mar-05 14-Mar-05 21-Mar-05 28-Mar-05 4-Apr-05 11-Apr-05 18-Apr-05 25-Apr-05 2-May-05 9-May-05 16-May-05 23-May-05 30-May-05 Expenses ($) 103,084 99,584 94,936 100,757 102,736 94,866 96,158 97,013 97,796 106,315 92,307 89,923 100,546 99,270 98,632 100,273 100,006 105,531 92,774 103,169 105,794 98,534 97,474 102,492 105,295 99,640 Revenues ($) 122,533 131,036 137,813 114,495 120,579 182,122 137,983 104,668 117,807 157,735 145,685 129,758 130,642 85,895 125,994 113,194 127,209 114,713 145,468 151,959 68,623 126,485 97,000 121,350 137,074 152,589 Week Of 6-Jun-05 13-Jun-051 20-Jun-05 27-Jun-05) 4-Jul-05 11-Jul-05 18-Jul-05 25-Jul-05 1-Aug-05 8-Aug-05 15-Aug-05 22-Aug-05 29-Aug-05 5-Sep-05 12-Sep-05 19-Sep-051 26-Sep-05 3-Oct-05 10-Oct-05 17-Oct-051 24-Oct-05 31-Oct-05 7-Nov-05 14-Nov-05 21-Nov-05 28-Nov-05 101,201 99,726 96,206 100,878 99,439 95,537 105,354 89,897 91,257 104,675 93,216 102,284 103,959 97,823 97,765 108,0321 101,433 96,548 93,295 100,227 97,876 102,985 100,099 102,2451 102,353 105,811 Revenues ($) 153,171 136,244 101,012 156,135 125,567 154,901 128,439 116,745 168,639 148,706 141,687 141,879 106,889 169,328 126,747 154,728 162,576 138,661 158,689 135,165 112,240 118,904 141,778 161,104 140,226 133,108 * All figures are after tax BURGER FINANCIAL DATA FROM THE PRIOR YEAR OF OPERATION* Week Expenses Of 6-Dec-04 13-Dec-04 20-Dec-04 27-Dec-04 3-Jan-05 10-Jan-05 17-Jan-05 24-Jan-05 31-Jan-05 7-Feb-05 14-Feb-05 21-Feb-05 28-Feb-05 7-Mar-05 14-Mar-05 21-Mar-05 28-Mar-05 4-Apr-05 11-Apr-05 18-Apr-05 25-Apr-05 2-May-05 9-May-05 16-May-05 23-May-05 30-May-05 Expenses ($) 103,084 99,584 94,936 100,757 102,736 94,866 96,158 97,013 97,796 106,315 92,307 89,923 100,546 99,270 98,632 100,273 100,006 105,531 92,774 103,169 105,794 98,534 97,474 102,492 105,295 99,640 Revenues ($) 122,533 131,036 137,813 114,495 120,579 182,122 137,983 104,668 117,807 157,735 145,685 129,758 130,642 85,895 125,994 113,194 127,209 114,713 145,468 151,959 68,623 126,485 97,000 121,350 137,074 152,589 Week Of 6-Jun-05 13-Jun-051 20-Jun-05 27-Jun-05) 4-Jul-05 11-Jul-05 18-Jul-05 25-Jul-05 1-Aug-05 8-Aug-05 15-Aug-05 22-Aug-05 29-Aug-05 5-Sep-05 12-Sep-05 19-Sep-051 26-Sep-05 3-Oct-05 10-Oct-05 17-Oct-051 24-Oct-05 31-Oct-05 7-Nov-05 14-Nov-05 21-Nov-05 28-Nov-05 101,201 99,726 96,206 100,878 99,439 95,537 105,354 89,897 91,257 104,675 93,216 102,284 103,959 97,823 97,765 108,0321 101,433 96,548 93,295 100,227 97,876 102,985 100,099 102,2451 102,353 105,811 Revenues ($) 153,171 136,244 101,012 156,135 125,567 154,901 128,439 116,745 168,639 148,706 141,687 141,879 106,889 169,328 126,747 154,728 162,576 138,661 158,689 135,165 112,240 118,904 141,778 161,104 140,226 133,108 * All figures are after tax