The Risk of Fire at a Car Assembly Plant Is

question 56

Multiple Choice

The risk of fire at a car assembly plant is 0.1%.If the firm will receive a payment of $40 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 $7 million and issuance costs of $1 million in the event of a loss if the risk-free rate is 5%?

• A)$5,421
• B)$6,415
• C)$6,923
• D)$7,619
• E)$7,142

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Definitions:

Myelin Sheath

A fatty layer that surrounds the axons of some nerve cells, providing electrical insulation and improving the speed of nerve impulse transmission.

Burst

A sudden break or rupture, typically referring to pipes, balloons, or vessels under pressure.

Electrical Signals

Pulses of electric current or electromagnetic fields that are used for communication between various parts of a system, especially within biological organisms and electronic devices.

Afferent Nerves

Sensory nerves that are responsible for detecting sensory information from the environment or even from inside the body and taking it to the CNS for interpretation.