Use the Following Information to Answer the Question(s)below

question 27

Multiple Choice

Use the following information to answer the question(s) below.
Rearden Metal can invest in a risk-free technology that requires an up-front investment of $1 million.Rearden's managers are hesitant to invest because of uncertainty over future interest rates.Suppose that all interest rates will be either 8% or 4% in one year and remain there forever.The risk-neutral probability that interest rates will drop to 4% is 40%.The one-year risk-free interest rate is 5% and today's rate on a risk-free perpetual bond is 6%.The rate on an equivalent perpetual bond that is repayable at any time (the callable annuity rate) is 7.65%.
-Assuming that this project will provide Rearden with perpetual annual cash flows of $65,000,the NPV of investing in the project today using the hurdle rate is closest to:

• A)-$281,000.
• B)-$150,000.
• C)-$83,000.
• D)+$83,000.
• E)+$281,000.

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Definitions:

Key Threats

Primary external challenges or obstacles that could negatively impact an organization's ability to achieve its strategic objectives.

Limitations

Restrictions or constraints that impact the scope, effectiveness, or outcomes of a project, research study, or business strategy.

Marketing Strategy

A comprehensive plan formulated to achieve specific marketing goals and objectives.

Coherent Strategy

A strategic approach that is logical, consistent, and connected in a way that all parts support each other towards achieving business goals.