Accounting for Country Risk of a Project.

Slidell Co. (a U.S. firm) considers a foreign project in which it expects to receive 10 million euros at the end of this year. It plans to hedge receivables of 10 million euros with a forward contract. Today, the spot rate of the euro is \($1.20,\) while the 1-year forward rate of the euro is presently \($1.24,\) and the expected spot rate of the euro in 1 year is \($1.19.\) The initial outlay is \($7\) million. Slidell has a required return of 18 percent.

There is a 20 percent chance that political problems will cause a reduction in foreign business, such that it would only receive 4 million euros at the end of 1 year.

Determine the expected value of the net present value of this project.