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Question 33 2.5 pts Q.33 - Q.35 are based on the following information: Garven Corp plans to sell a machine with a 1-year warranty to
Question 33 2.5 pts Q.33 - Q.35 are based on the following information: Garven Corp plans to sell a machine with a 1-year warranty to J.R. Inc. There is a 2% probability Garven will lose a $1,000,000 lawsuit in the coming year. If this happens, Garven will go bankrupt and will not provide any warranty services to J.R.. Because J.R. views purchasing the machine from Garven is risky, J.R. will only pay $10,000 for the machine. If Garven purchases a $1,000,000 liability insurance for $25,000, Garven is able to provide the promised warranty services to J.R. for sure in the next year. In this case, J.R. will pay $17,000 for the machine. What is the pure premium of this $1,000,000 liability insurance? 5,000. 20,000. 30,000. 25,000 Question 34 2.5 pts Q.33 - Q.35 are based on the following information: Garven Corp plans to sell a machine with a 1-year warranty to J.R. Inc. There is a 2% probability Garven will lose a $1,000,000 lawsuit in the coming year. If this happens, Garven will go bankrupt and will not provide any warranty services to J.R... Because J.R. views purchasing the machine from Garven is risky, J.R. will only pay $10,000 for the machine. If Garven purchases a $1,000,000 liability insurance for $25,000, Garven is able to provide the promised warranty services to J.R. for sure in the next year. In this case, J.R. will pay $17,000 for the machine. What is Garven's net increase in the expected cash flow with this liability insurance? (Ignore the cost of warranty services incurred by Garven.) 2,500. 2,000. O 1,500. O 1,000. Question 35 2.5 pts Q.33 - Q.35 are based on the following information: Garven Corp plans to sell a machine with a 1-year warranty to J.R. Inc. There is a 2% probability Garven will lose a $1,000,000 lawsuit in the coming year. If this happens, Garven will go bankrupt and will not provide any warranty services to J.R.. Because J.R. views purchasing the machine from Garven is risky, J.R. will only pay $10,000 for the machine. If Garven purchases a $1,000,000 liability insurance for $25,000, Garven is able to provide the promised warranty services to J.R. for sure in the next year. In this case, J.R. will pay $17,000 for the machine. Which motivation for corporate risk management is illustrated in this example? Tax motivations. Avoid costly external finance. Manage agency problems. Mitigate financial distress and bankruptcy Costs
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