The Risk of Fire at a Car Assembly Plant Is

question 16

Multiple Choice

The risk of fire at a car assembly plant is 0.2%.If the firm will receive a payment of $30 million in one year if there is a fire during the year,what is the net present value (NPV) of purchasing insurance if the firm will face financial distress costs of $5 million and issuance costs of $1 million in the event of a loss if the risk-free rate is 5%?

• A)$11,429
• B)$12,367
• C)$12,967
• D)$13,673
• E)$14,356

---

Definitions:

Waiting Lists

Lists of individuals or entities waiting for the allocation of a service or a product, typically used when demand exceeds supply.

Bribes

Payments made to influence someone's decisions or actions in favor of the payer, typically considered illegal or unethical.

Rent Control

A government policy that sets a maximum price (a rent ceiling) landlords can charge tenants, intended to make housing more affordable.

Landlords

Property owners who rent out real estate to tenants for a periodic payment, usually monthly.