Use the Information for the Question(s)below

question 61

Multiple Choice

Use the information for the question(s) below.
Your firm faces an 8% chance of a potential loss of $50 million next year.If your firm implements new safety policies,it can reduce the chance of this loss to 3%,but the new safety policies have an upfront cost of $250,000.Suppose that the beta of the loss is 0 and the risk-free rate of interest is 5%.
-If your firm is fully insured,the net present value (NPV) of implementing the new safety policies is closest to:

• A)$2.15 million
• B)$2.5 million
• C)$2.25 million
• D)-$.25 million
• E)$2.75 million

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