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

question 55

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,Rearden should:

• A)invest today since the NPV is positive.
• B)invest today since the NPV is negative.
• C)invest today since the NPV using the hurdle rate is negative.
• D)delay investing since the NPV using the hurdle rate is negative.
• E)delay investing since the NPV using the hurdle rate is positive.

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Definitions:

1H NMR Spectrum

A representation of the magnetic resonance signal of hydrogen atoms within a molecule, used to deduce structural information about the molecule's environment.

Unknown Acid

A term used for an acid whose identity is not yet determined in a laboratory setting, often requiring further analysis for identification.

Spectral Information

Refers to data obtained from measuring the response of a sample to varied wavelengths of electromagnetic radiation, used extensively in analysis and identification of compounds.

Carboxylic Acids

Organic acids characterized by the presence of at least one carboxyl group (-COOH), which imparts acidic properties to the molecule.