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

question 96

Multiple Choice

Use the following information to answer the question(s) below.
Suppose that you have received two job offers.Rearden Metal offers you a contract for $75,000 per year for the next two years while Wyatt Oil offers you a contract for $90,000 per year for the next two years.Both jobs are equivalent.Suppose that Rearden Metal's contract is certain,but Wyatt Oil has a 60% chance of going bankrupt at the end of the year.In the event that Wyatt Oil files for bankruptcy,it will cancel your contract and pay you the lowest amount possible for you to not quit.If you do quit,you expect you could find a new job paying $75,000 per year,but you would be unemployed for four months while searching for this new job.
-Assuming your cost of capital is 6 percent,based on the present value of your expected wage you should:

• A)accept Rearden's offer since the PV of your expected wage would be approximately $6000 higher.
• B)accept Rearden's offer since the PV of your expected wage would be approximately $8000 lower.
• C)accept Rearden's offer since the PV of your expected wage would be approximately $8000 higher.
• D)accept Wyatt's offer since the PV of your expected wage would be approximately $6000 higher.

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Definitions:

Grace Period

A grace period is a set length of time after a due date during which a payment can be made without penalty.

Commercial Insurance

Insurance that covers some type of business risk.

Business Risk

The possibility that a company will have lower than anticipated profits or experience a loss rather than making a profit.

Insurance Agreement

is a contract between an insurance provider and a policyholder, specifying the terms for coverage of specified risks in exchange for premiums.