UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGNCollege of Commerce and Business Administration D E P A R T M E N T O F F I N A N C EFinance 431 Assignment 3Spring, 2008 Due: March 4,2008Cookies-R-Us operates a single store attached to a kitchen. The store is located in a single story building with a basement. The total area of the store and kitchen is 20,000 square feet. There is a small open area behind the store and a few trees on the property in front of the store. 1. The risk manager for Cookies-R-Us is trying to follow the five steps in the Risk Management Process. When the risk manager contacts aninsurance broker to determine what coverage could be purchased and at what price, which one of these steps is the risk manager following?2. One of the most valuable assets of Cookies-R-Us is its secret recipe for chocolate chip cookies. In order to keep this recipe confidential, it is kept locked in a safe that can be accessed by only two trusted employees. (This recipe is so long and complicated that there is no danger of one of these employees memorizing this recipe and selling to others.) However, there is the risk that the safe and its contents could be destroyed, or the recipe stolen. What type of Item Exposed to Loss does this recipe represent?3. If the kitchen in the back of the store that is used to bake the cookies were ever damaged, then Cookies-R-Us would rent another location temporarily in order to continue to be able to supply cookies to its loyal(and addicted) customers. The cost renting this other facility represents which type of Effect of Loss?Cookies-R-Us purchases the BPP coverage described in Appendix C of the Risk Management and Insurance text (which is the Board Form coverage), including the Coverage Extensions (pages 700-701) and the Business IncomeCoverage (pages 708-714). While this policy is in effect the company experiences the following losses. For each incident, indicate which, if any, ofthe described property would be covered. Assume that any losses exceed the deductible.4. A driver loses control of his vehicle and knocks down a tree on the company's property. The tree breaks a sign that was on a pole in front of the building. The driver leaves the scene of the accident before he can be identified. Is the tree or the sign covered?5. A tornado hits the store, knocking out the front windows, damaging thekitchen walls and destroying $2000 worth of cookies. While repairs aremade, the store is closed for two weeks, which causes a $10,000 lossin income. Are the windows, wall, cookies or lost income covered?6. Vandals break into the store and write terrible slogans on the walls ("Fat is Bad!" "Cookies Can Kill You!"). They pour cleaning fluids in the open area behind the store, polluting the area. They also take $250 in cash from the cash register. It costs $5,000 to clean up the pollution. Is the cash, the cost of cleaning up the pollution or the cost of removing the graffiti covered?7. Your store is robbed one night. The thief broke the glass in your front door to enter the building and stole cookies and cash. Is the door, the cookies or the cash covered under this policy? 8. The store computer that keeps track of all the store’s financial records is infected with a virus. The virus destroys the computer and all the financial records are lost. The company has to hire an accountant to replace all the records. Is the computer or the cost of the accountant covered under this policy?9. A fire breaks out in the kitchen one day, destroying the stove and damaging the walls. The company has to close for a month while repairs are made, which causes it to lose $50,000 in income. Is the stove, walls or lost income covered?10. Cookies-R-Us owns a guard dog that has been trained not to eat the merchandise while it is guarding the property at night. This dog is irreplaceable, for all practical purposes, and represents a valuable asset for the company. Which, if any, of the following policies could Cookies-R-Us use to insure this dog: BPP or Inland Marine?Fin 431 - Assignment 3 Answer Sheet