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:

Recession

A period of temporary economic decline during which trade and industrial activities are reduced, typically identified by a fall in GDP in two successive quarters.

Deregulation

The process of reducing or eliminating government rules controlling how businesses can operate, often to increase market competition.

Subsidization

The act of providing financial aid or support by a government or organization to lower the cost of producing goods or services.

Monopoly

A market structure characterized by a single seller, offering a unique product or service with no close substitutes, leading to the control of a particular market.