Suppose a firm projects a $5.7 million perpetuity from an investment of $21 million in Spain....

 

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Suppose a firm projects a $5.7 million perpetuity from an investment of $21 million in Spain. If the required return on this investment is 19 percent, how large does the probability of expropriation in year 4 have to be before the investment has a negative NPV? Assume that all cash inflows occur at the end of each year and that the expropriation, if it occurs, will occur prior to the year 4 cash inflow or not at all. There is no compensation in the event of expropriation. Enter your answer as a decimalized number with 4 decimal places. For example, if you compute probability of 12.34%, enter 0.1234 Suppose a firm projects a $5.7 million perpetuity from an investment of $21 million in Spain. If the required return on this investment is 19 percent, how large does the probability of expropriation in year 4 have to be before the investment has a negative NPV? Assume that all cash inflows occur at the end of each year and that the expropriation, if it occurs, will occur prior to the year 4 cash inflow or not at all. There is no compensation in the event of expropriation. Enter your answer as a decimalized number with 4 decimal places. For example, if you compute probability of 12.34%, enter 0.1234

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Let the probability of expropriation be p Then probabilit... View the full answer