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

question 42

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 $80,000,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 positive.
• 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:

EMDR

Eye Movement Desensitization and Reprocessing, a psychotherapy technique especially effective for treating post-traumatic stress disorder (PTSD) by using patient's rapid, rhythmic eye movements.

Therapeutic Relationship

The professional and collaborative bond between a therapist and client, which is essential for the effective delivery of therapy and client progress.

Mood Disorders

A category of mental disorders characterized by persistent disturbances in mood, such as depression or bipolar disorder.

Exposure Therapy

A therapeutic technique that involves confronting fears directly by gradual exposure to the anxiety-provoking situation or object, under controlled conditions.