Use the Information for the Question(s)below

question 1

Multiple Choice

Use the information for the question(s) below.
Your firm faces an 8% chance of a potential loss of $50 million next year.If your firm implements new safety policies,it can reduce the chance of this loss to 3%,but the new safety policies have an upfront cost of $250,000.Suppose that the beta of the loss is 0 and the risk-free rate of interest is 5%.
-If your firm is fully insured,the NPV of implementing the new safety policies is closest to:

• A)$2.15 million.
• B)$2.5 million.
• C)$2.25 million.
• D)-$0.25 million.

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Definitions:

Depreciable Assets

Long-term assets, such as buildings or equipment, whose cost is allocated over the useful life of the asset reflecting wear and tear or obsolescence.

Income Tax Impact

The effect of income tax laws on an entity's financial results, including how taxes influence net income or loss.

Negative Goodwill

A situation that occurs when the purchase price of a company is less than the fair value of its identifiable net assets, often reflecting expectations of future losses or challenges.

Consolidated Financial Statements

Consolidated financial statements are financial statements that aggregate the financial position and operational results of a parent company and its subsidiaries, presenting them as one single entity.