Self Insurance Case - Gowen Manufacturing Assume that Gowen is interested in a self insurance...
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Self Insurance Case - Gowen Manufacturing Assume that Gowen is interested in a self insurance plan for their 2020-2021 Workers Compensation policy. They are deciding whether it is a wise decision by comparing it to Guaranteed Cost. Annual Guaranteed Cost Premium is $750,000 where Gowen's Risk Manager estimates $600,000 (or 80%) for claim payments and the remaining $150,000 (or 20%) for fixed costs which follow this payout schedule for the next 5 years: Payout Year Payout % Unadjusted Payout Amount Year 1 30% $330,000 Year 2 15% a. Year 3 15% b. Year 4 10% C. Year 5 30% $180,000 Total Please answer each of the following (no need to show your work). a. _.(1 pt) b.__(1 pt) c. _- (1 pt) d. Given a 6% cost of capital, what is the Net Present Value of this decision and will the Risk Manager achieve at least $100,000 in savings when compared to the Guaranteed Cost? (4 pts)
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