Answer:
1) The amount to be paid as insurance if the revenue increases is $937,000
2) Yes because the total value of the risk insured and the likelihood of the occurrence of the risk both increases
Step-by-step explanation:
1) The given amount in revenue of the Diablo's Domain = $250,000,000
The amount the company paid as insurance = $750,000
The equivalent amount the company paid as insurance = $3 for every $1,000
The percentage amount in revenue the park revenue increases by = 25%
Therefore, the new amount in revenue = 1.25 × $250,000,000 = $312,500,000
The amount to be paid as insurance if the revenue increases = $315,500,000 × 3/1000 = $937,5000
The amount to be paid as insurance if the revenue increases = $937,000
2) It is reasonable for the insurance cost to increase proportionally when the items insured which leads to the increase in revenue increases because the value of the risk insured which is the event of settlement for losses increases as well as the probability of the risk occurring also increases.
