What is the present value of the loss control expenditures

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Reference no: EM132869922

Use the following information to answer questions A-D. PTM Inc. is evaluating a loss control plan. The costs and benefits are as follows;

(Ignore the implications of possible reduced insurance premiums.)

Today

End of

Year 1

End of

Years 2-5

Loss Control

Expenditures

$10,000

$4,000

0

Reduction in

Expected Losses

0

$3,400

$3,400

A. Using a cost of capital of 6%, what is the present value of the loss control expenditures (rounded to the nearest dollar)?

B. Using a cost of capital of 6%, what is the present value of the reduction in expected losses (rounded to the nearest dollar)?

C. What decision should PTM make regarding these loss control activities?

D. Using a cost of capital is 8%, what decision should PTM make regarding these loss control activities?

Reference no: EM132869922

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