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

question 32

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 $55,000,the NPV of investing in the project today is closest to:

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

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Definitions:

Immune System

The body's defense mechanism against infections, diseases, and foreign substances, comprising various organs, cells, and proteins.

White Blood Cells

Components of the immune system that defend the body against infectious disease and foreign materials.

Coronary Heart Disease (CHD)

A condition characterized by reduced blood flow to the heart muscle, often due to the buildup of plaque in the coronary arteries.

Pathogens

Microorganisms or viruses that can cause disease when transmitted to a host organism, including bacteria, viruses, fungi, and parasites.