Part I.

A company issues one laptop computer to each employee (100 employees). This includes the hardware, software, and data. In the past two years, the company has lost an average of one laptop per quarter although some years have seen more losses than others. These laptops were stolen from conference rooms when they were left unattended. In an average year, the exposure factor (EF) has been 1.0 (totally loss of asset). In some years, the EF decreases because only parts of the laptop were stolen. In other years, the EF increases because the laptop and its accessories were stolen. However, when viewed as a unit, we factor in the total cost as $2000 per unit.

With this information, calculate the following to be used for Part II and III.

SLE= $2,000

ARO= 4

ALE =$8,000

Part II.

A hardware lock is a metal cable that can attach a laptop computer to furniture. You loop it around a desk or a chair and then connect the cable to the laptop. It usually includes a combination lock. Once the lock is secured, the combination needs to be entered to remove the lock from the laptop. Each lock costs $10, and they must be replaced every year.

1.What is the safeguard value?$1,000

2.It is estimated that if the locks are purchased, ARO will decrease from 4 to 1. Should the company purchase the locks? $2,000

3.What is the savings in the first year? $6,000

4.What is the realized savings? $5,000

5.If nothing is done, the company will likely lose how much? $8,000

6.If the locks are purchased, how much will the company lose? $2,000

Part III.

Assuming the same conditions, provide calculations with the following assumptions.

1.(5 points) Depreciation of assets follow 20% the first year, and 10% every year thereafter. At what year should we stop buying the locks?

2.(5 points) Replacement costs for laptops is at 65% for the first year and decreases 20% every year thereafter with no depreciation of assets. When should we stop buying the locks?

3.(5 points) Assuming replacement costs for laptops follows #2, in year 5, the controls are no longer effective as they used to be, and now the ARO is 2. When should we stop buying the locks?

4.(5 points) Assuming replacement costs for laptops follows #2, the price of locks increases by 25% in year 5 and continue to increase 5% every year thereafter. Additionally, the EF increased to 1.2 from years 2-3. When should we stop buying the locks?

5.(5 points) Compare the analysis from #4 to buying insurance at 1.5% of total asset value (assuming straight line depreciation of 20% per year) for the first 10 years. Should you purchase insurance or the locks? At what year would it be economical to purchase insurance?