Use the Information for the Question(s)below

question 64

Multiple Choice

Use the information for the question(s) below.
Your firm faces an 8% chance of a potential loss of $50 million next year.If your firm implements new safety policies,it can reduce the chance of this loss to 3%,but the new safety policies have an upfront cost of $250,000.Suppose that the beta of the loss is 0 and the risk-free rate of interest is 5%.
-If your firm is uninsured,the net present value (NPV) of implementing the new safety policies is closest to:

• A)$2.25 million
• B)-$.25 million
• C)$2.5 million
• D)$2.15 million
• E)$2.75 million

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Definitions:

Free Recall

The process of retrieving information without the use of cues or prompts, in any order.

Recognition

The cognitive process of identifying information as being familiar, such as objects, situations, or people.

Savings

A concept in psychology referring to the amount of time or effort saved in relearning material compared to the initial learning.

Implicit Memories

Implicit memories are memories that influence our behavior and knowledge without conscious awareness.