Use the Information for the Question(s)below

question 23

Multiple Choice

Use the information for the question(s) below.
Your firm faces a 6% chance of a potential loss of $45 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 $350 000. Suppose that the beta of the loss is 0 and the risk-free rate of interest is 5%.
-If your firm is uninsured, the NPV of implementing the new safety policies is closest to:

• A)$2.25 million
• B)-$0.25 million
• C)$0.94 million
• D)$1.95 million