A multinational corporation is considering a project in New Zealand. The investment will require an initial investment of $22 million. The investment will then generate $2.5 million in year 1, $3 million in year 2, and $4 million in year 3. Starting in year 3, the project will earn $4 million each year indefinitely. The applicable cost of capital is 17%. There is a chance the fixed asset required for the project will be expropriated. If this is occurs, the expropriation will take place in year 2 before that year's cash flow; however, if the asset is expropriated, there is expected compensation at the end of year 2 of $3 million for the asset. 

What is the largest probability of expropriation before the NPV of the project is negative?

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To determine the largest probability of expropriation before the net present value NPV of the projec... View the full answer