A Company Has a Current Tax Rate of 35% and Faces

question 67

Multiple Choice

A company has a current tax rate of 35% and faces a 10% chance that the its output prices will drop and it will lose 200,000 over the next year.The firm would then be in a 15% tax bracket if it faces a loss.Compute the net present value (NPV) from purchasing insurance if the rate of interest is 5% and the beta of the output prices is 0.

• A)$2932
• B)$3178
• C)$3312
• D)$3810
• E)$2761

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Definitions:

Legal Requirements

The obligations imposed by law that organizations and individuals must adhere to in their operations.

Performance Feedback

Information provided to an individual or team regarding their performance, aiming to reinforce strengths or identify areas for improvement.

Annual Basis

A timeframe or calculation period of one year, used for budgeting, performance evaluation, and financial reporting.

Calibration

The process of adjusting and setting equipment or procedures to ensure precision and accuracy in measurements or outputs.