Using Net Benefit to Evaluate Risk Response Alternatives Cooper Movie Studio Corp makes movies and is interested in lowering its operating costs for the following year, while maintaining the high quality and appeal of its movies Coopers management is concerned about the additional costs the company would have to incur if new industry regulation is passed by Congress The chart at the top of the next page contains a description of this top risk, an inherent risk assessment, three risk response alternatives, and a residual risk assessment for each response alternative Inherent Risk Risk Response Residual Risk Risk Likelihood Impact (on operating costs) Alternatives Likelihood Impact (on operating costs) Poor behavior by others in the industry results in Congress passing costly new legislation that regulates the behavior of all movie studios 30 $80,000,000 A Share Coopers effective marketing processes with competitors to help mitigate poor industry behavior 20 $80,000,000 B Lobby Congress on behalf of the movie industry generally and Cooper in particular 15 $50,000,000 C Take no action in response to possible new regulation 30 $80,000,000 Finally, Coopers management accountants estimate that the incremental cost of implementing risk response A is $3,000,000 and the incremental cost of implementing risk response B is $13,000,000 Required If an amount is zero, leave it blank or enter 0 1 Calculate the inherent risk for Cooper $ 2 Calculate the residual risk for Cooper associated with each of the three risk response alternatives A, B, and C A $ B $ C $ 3 Calculate the benefit for Cooper associated with each of the three risk response alternatives A, B, and C A $ B $ C $ 4 Calculate the net benefit for Cooper associated with each of the three risk response alternatives A, B, and C A $ B $ C $ 5 Using net benefit as the criterion, which risk response should Cooper choose to implement The risk response alternative with the greatest net benefit is alternative A

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Using Net Benefit to Evaluate Risk Response Alternatives Cooper Movie Studio Corp. makes movies and is interested in lowering its operating costs for the following

Using Net Benefit to Evaluate Risk Response Alternatives

Cooper Movie Studio Corp. makes movies and is interested in lowering its operating costs for the following year, while maintaining the high quality and appeal of its movies. Coopers management is concerned about the additional costs the company would have to incur if new industry regulation is passed by Congress. The chart at the top of the next page contains a description of this top risk, an inherent risk assessment, three risk response alternatives, and a residual risk assessment for each response alternative.

	Inherent Risk		Risk Response	Residual Risk
Risk	Likelihood	Impact (on operating costs)	Alternatives	Likelihood	Impact (on operating costs)
Poor behavior by others in the industry results in Congress passing costly new legislation that regulates the behavior of all movie studios.	30%	$80,000,000	AShare Coopers effective marketing processes with competitors to help mitigate poor industry behavior	20%	$80,000,000
			BLobby Congress on behalf of the movie industry generally and Cooper in particular	15%	$50,000,000
			CTake no action in response to possible new regulation	30%	$80,000,000

Finally, Coopers management accountants estimate that the incremental cost of implementing risk response A is $3,000,000 and the incremental cost of implementing risk response B is $13,000,000.

Required:

If an amount is zero, leave it blank or enter "0".

1. Calculate the inherent risk for Cooper.

2. Calculate the residual risk for Cooper associated with each of the three risk response alternatives A, B, and C.