The Risk of Fire at a Car Assembly Plant Is

question 109

Multiple Choice

The risk of fire at a car assembly plant is 0.3%.If the firm will receive a payment of $20 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 $6 million and issuance costs of $1 million in the event of a loss if the risk-free rate is 5%?

• A)$19,429
• B)$20,000
• C)$22,176
• D)$23,981
• E)$24,514

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