A Company Has a Current Tax Rate of 30% and Faces

question 6

Multiple Choice

A company has a current tax rate of 30% and faces a 15% chance that the its output prices will drop and it will lose $100,000 over the next year.The firm would then be in a 10% tax bracket if it faces a loss.Compute the net present value (NPV) from purchasing insurance if the rate of interest is 5% and the beta of the output prices is 0.

• A)$1932
• B)$2178
• C)$2857
• D)$2591
• E)$3122

---

Definitions:

Proper Indorsement

A legally acceptable signature or annotation on a document, such as a check, that authorizes its transfer or acceptance.

Dishonor

The refusal or inability to pay a debt when due, or the failure of a financial instrument, like a check, to be accepted or paid on presentation.

Refusal

The act of declining or rejecting an offer, request, or command.

Liability

The state of being legally responsible for something, typically a debt or obligation.