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

question 43

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 $80,000,the NPV of investing in the project today using the hurdle rate is closest to:

• A)-$281,000
• B)+$46,000
• C)+$83,000
• D)+$143,000
• E)+$238,000

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Definitions:

Emotional Supportive

Pertains to actions or behaviors that provide comfort, care, and reassurance to individuals to help them cope with emotional distress.

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The unique attributes or skills that an individual possesses which contribute to their success or effectiveness in various endeavors.

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The unique combination of skills, experiences, and personality that an individual presents to the world, especially in professional contexts.

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An employee who is highly dedicated and aggressively works towards achieving the company's goals.