Philiip Witt wishes to create a portfolio for his local suppilers for his new li
ID: 1194018 • Letter: P
Question
Philiip Witt wishes to create a portfolio for his local suppilers for his new line of keyboards. All his suppliers reside in hurricane and tornado prone areas. He believes that the probability in any year of a 'super event' like tornado or hurricane that all suppliers may shut down at the same time for at least 2 weeks at 3%. Such a total shutdown would cost company approximately $400,000. He estimates the 'unique event' risk for any of the suppliers to be 5%. Assuming marginal cost of managing an additional supplier is $15,000 per year how many suppliers should Witt use? Assume there are up to (3) nearly identical suppliers nearby.
Explanation / Answer
Answer:
1. Assets – investments which are expected to produce revenues, either directly when the asset is sold or indirectly, like a manufacturing plant that produces inventories for sale or a corporate office building that housed employees supporting revenue generating activities of the company.
2. Liabilities – Are borrowed funds (accounts payable, accrued liabilities, and obligations to lenders or bond investors).