Use the Following Information to Answer the Question(s)below

question 53

Multiple Choice

Use the following information to answer the question(s) below.
Rearden Metal can invest in a risk-free technology that requires an up-front investment of $1 million.Rearden's managers are hesitant to invest because of uncertainty over future interest rates.Suppose that all interest rates will be either 8% or 4% in one year and remain there forever.The risk-neutral probability that interest rates will drop to 4% is 40%.The one-year risk-free interest rate is 5% and today's rate on a risk-free perpetual bond is 6%.The rate on an equivalent perpetual bond that is repayable at any time (the callable annuity rate) is 7.65%.
-Assuming that this project will provide Rearden with perpetual annual cash flows of $55,000,the NPV of investing in the project next year is closest to:

• A)-$281,000.
• B)-$83,000.
• C)+$46,000.
• D)+$83,000.
• E)+$143,000.

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Definitions:

MicroRNAs

Small non-coding RNA molecules that play a role in regulating gene expression by binding to and silencing target mRNAs.

Transcription

Transcription is the process that takes place when RNA polymerase reads a coding sequence of DNA and produces a complementary strand of RNA, called messenger RNA (mRNA).

Translation

Translation is the process that takes place when a strand of mRNA is decoded by a ribosome to produce a protein.

Mature RNA Transcript

The final form of RNA after processing, which includes splicing and modifications, ready for translation into a protein.