Use the Information for the Question(s)below

question 61

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 fully insured,the net present value (NPV) of implementing the new safety policies is closest to:

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

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Definitions:

Effective Organizations

Organizations that achieve their goals efficiently and effectively by optimizing processes and ensuring employee satisfaction and engagement.

Changing Environment

Refers to the dynamic and evolving external and internal conditions that affect organizations and individuals, necessitating adaptation and flexibility.

Bureaucratic

Describes an administrative system governing any large institution that is characterized by fixed rules, hierarchy, and a detailed division of labor.

Mechanistic Organizations

Organizations characterized by a rigid hierarchy, fixed duties, and a focus on rules, giving them a machine-like efficiency.