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ULIBSIIDI'I I U Not yet answered Marked out of 5.00 1" Flag question (A) Property crime rate has recently increased. In case of a burglary, your rm will lose $200 million. The beta of this loss is zero, and the actuarially fair cost of full insurance is $20 million. If you implement a new hightech security system, the probability of burglary will decline from 11% to 4%, but it will cost $350,000 upfront. The risk-free rate of interest is 10%. If your rm is insured without any deductible, what is the NPV of implementing the new security system? Explain. How would your answer change if the risk-free interest rate is reduced to 5%? (2 marks) (B) Evana Foods produces vegetable oil from imported corn. It is worried that the price of Brazilian corn will increase from AUD25 to AUD36 by December 2021. Evana signs a long-term hedging contract with its supplier. Under what condition will such a contract help Evana offset its losses? (1 mark) (C) Globe Metal imports ore from Australia. Assume that it is 2017 and Globe Metal is worried that the Australian mines may enter into a long term contract with the German to sell all of their ore output to Germany, hence cutting off Globe Metal's supply. In the event of such a contract with the German, Globe Metal will face much higher costs for its raw materials causing its operating profits to decline substantially and its marginal tax rate to fall from its current level of 40% down to 20%. An insurance firm has agreed to write a trade insurance policy that will pay Globe Metal $3,000,000 in the event of the Australian supply of ore being cut off. The chance of the Australian supply being cut off is estimated to be 25%, with a beta of -1 .5.0. The riskfree rate of interest is 5% and the return on the market is estimated to be 15%. What is Globe's NPV for purchasing this policy? Show your calculations. (2 marks)