6.

13
(a) When a visitor or participant is injured during a sports event organized by S&L Limited due to the companys negligence, the company may be liable to pay compensation to the victim. Public liability insurance allows the company to transfer the liability risk to insurance companies as the insurance companies are responsible for paying compensation to the victim. Employees compensation insurance aims to cover medical expenses and financial compensation due to the injury or death of employees at work, for example, when an employee of S&L Limited is injured during a sport event, the insurance companies will be responsible for paying financial compensation to the injured employee. (b) Risk reduction provide better safety management training to staff. Risk assumption set aside an amount of money to pay compensation to victims in case of an accident. (c) John can use insurance to protect against the risk of employee theft. He can buy fidelity guarantee insurance. This is because the risk is a pure risk and it is uncontrollable. However, the risk of losing business due to increased competition is non-insurable. This is because the risk is a speculative risk.

6.14
(a) (i) Risk reduction (ii) Risk transfer (iii) Risk transfer (iv) Risk assumption (b) No, because the risk is a speculative risk. (c) Risk reduction ask the casino group to make a down payment in advance.

Risk transfer invite other construction companies to participate in the project.

4.13
(a) 3.04 years (b) - No - Payback period is over 3 years (c) Limitation of payback period - Time value of money is ignored - Cash flows after payback period are ignored. (d) Net present value (NPV) - The time value of money is considered. - All cash flows are considered in the calculation of NPV.

4.14
(a) 3.46 years -0.97 millions (b) - Simple to calculate - Easy to understand - It helps identify risky projects (c) - No - Negative NPV

5.18
(a) Inventory cost - Storage costs - Financial costs e.g. capital tied up - Wastage/ spoilage

Administrative costs Stock out cost

(b) (c) Limitation - Stockout not considered - Assume constant rate of demand - Assume fixed order intervals - Assume constant holding cost (d) (i) - cope with fluctuations in supply - cope with fluctuation in demand - cope with fluctuation in operation (ii) No, because the seasoned chickens are not durable (e) (i) - Demographic information of customer buying different flavors of chickens - psychographical date (e.g. lifestyle) - Frequency of patronage - Occasion/reason for buying a certain flavor (ii) Sales records Advantages - No extra cost; - Readily available - Objective data Offer more in-depth comments/reasons Flexibility in eliciting responses Speedy compilation of data Daily non-stop operation Disadvantages - New business has no prior record - The past may not indicate the future - Subject to response/ interpretation bias - High cost to administer an interview - Time-consuming - Biased sample - Less reliable data

Interviews

Online survey

2008-I-7 (C)

- Diversification: restaurant is committed to a specific industry - hedging: no hedging instrument for running a restaurant - Liquidity: it is not easy to sell the business particularity when the economy is doomed. - Minimum/zero risk exposure: high entry and exit cost of running a restuarnant. (d) - expected years of operation - Future stream of cash flow - Expected salvage value - Cost of capital - Certainty of the future stream of cash flows (e) Disadvantages: - Large capital outlay - Long term commitment, withdrawal would cost a lot - Fixed in location - High maintenance cost