TV Queen

BALANCE SHEET

as of June 30, 2000

ASSETS

Total Current Assets $6,000,000.00

Long Term Assets:

Total Long-term Assets $11,500,000.00

TOTAL ASSETS $17,500,000.00

LIABILITIES:

Total Current Liabilities $4,000,000.00

Long Term Liabilities

Total Long-term Liabilities $9,500,000.00

TOTAL LIABILITIES $13,500,000.00

TOTAL STOCKHOLDER'S EQUITY $4,000,000.00

TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $17,500,000.00

The CFO of TV Queen is looking for the best way to finance workers' compensation risk. TV Queen is looking at retention (similar to self-insurance).All financial information on the balance sheet will stay steady for the next decade and TV Queen's internal rate of return is 10%.

Which method of risk management is most appropriate for workers' compensation losses over the next 10 years?TV Queen uses working capital to determine how much it is willing to retain, which is 5-10% of working capital for its workers' compensation risk and not a penny more.TV Queens workers' compensation claims history shows its workers' compensation losses are normally distributed with a mean of $100,000 and a standard deviation of $75,000.

Question 1. What is the working capital for TV Queen as of December 31^st, 2017?

I have $2 million

Question 2. What is the maximum amount, in dollars, that TV Queen would be willing to retain?

I have $200 thousand

Question 3. Given TV Queen 's workers' compensation loss distribution, should TV Queen retain workers' compensation losses and why?Here's where I get stuck.....I know I have to do something with the internal rate of return and the standard deviation and mean...but I don't know where to start, can you help?