Use the Information for the Question(s)below

question 9

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 uninsured,the NPV of implementing the new safety policies is closest to:

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

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Definitions:

Cohesive

The quality of forming a united whole, indicating how well elements stick together and are mutually supportive within a group or system.

Feedback

Information provided about the results of one's actions intended to guide future behavior or performance.

Rational Model

A decision-making process based on systematic analysis of a problem, identification of options, and logical choice among alternatives.

Holistic Picture

An overall or complete view that considers all factors, elements, or aspects of a situation.