Simon Owns Several Gas Stations

question 119

Multiple Choice

Simon owns several gas stations. He realizes that among the several risks associated with this type of business is the risk of minor damage to cars from dirty or contaminated fuel. He also knows that there is a small chance of a major loss if a fire occurred at one of his gas stations. Simon wants to control his insurance costs while still maintaining a reasonable risk management program. He is considering self-insurance. If he decides to use this approach, he will probably

• A) rely entirely on a strategy of risk avoidance.
• B) decide to cover both types of risk himself.
• C) decide to self-insure for the smaller, more routine, losses associated with the damage caused by dirty or contaminated fuel, but seek coverage from an insurance company for the potentially much larger loss from a fire.
• D) decide to cover the risk of fire himself, and take out an insurance policy to cover the risk of contaminated fuel.

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Definitions:

Administrative Expenses

The costs related to the general administration of a business, such as salaries of senior executives, accounting, human resources, and information technology.

President's Salaries

Compensation or wage paid to the president of a company, often reflecting their role's responsibility and level of professional experience.

Depreciation

The planned allocation of a physical asset's cost over the time it remains useful.

Merchandising Business

A type of business that purchases finished goods and sells them to consumers, typically at a retail level.