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:

Superstitious Behaviour

Actions that are repeated because they are associated with success or avoidance of failure, despite having no causal relationship to the outcomes.

Aversive Reactions

Aversive Reactions are negative responses, either physical or psychological, to a stimulus that an individual finds unpleasant or noxious.

Primary Reinforcer

An innately satisfying stimulus, such as food or warmth, that does not require any learning to become desirable.

Salient

Referring to something that is prominent, significant, or conspicuous in a particular context.