Scenario 17.4 Consider the Following Information

question 49

Multiple Choice

Scenario 17.4
Consider the following information:
StowUrStuff Storage is located slightly below sea level in a coastal town. It could build and maintain a flood control system around its property at an annual cost of $1000, and if it did so, the probability of a flood's doing $1,000,000 in damage during the year would be .005. With no flood control system, the probability of such a flood would be .01.
-Refer to Scenario 17.4. If the flood control system were not in place, the insurer would not be willing to insure against the flood for any premium less than:

• A) $5,000.
• B) $10,000.
• C) $100,000.
• D) $200,000.
• E) $1,000,000.

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Definitions:

Interim Reporting

The financial reporting on a company's activities during a portion of the fiscal year, such as quarterly or semi-annual reports.

Inventory Procedures

Established methods for managing and controlling inventory levels, valuation, and turnover.

Gross Profit Method

An inventory valuation technique estimating the cost of goods sold and the ending inventory, based on the gross profit margin.

LIFO Liquidations

A situation where older inventory, costed at historical prices, is sold, potentially leading to an inflated profit margin due to lower cost of goods sold.