Rockford Co. plans to expand its successful business by establishing a subsidiary in Canada.

However, it is concerned that after 2 years the Canadian government will either impose a special tax on any income sent back to the U.S. parent or order the subsidiary to be sold at that time. The executives have estimated that either of these scenarios has a 15 percent chance of occurring. They have decided to add four percentage points to the project’s required rate of return to incorporate the country risk that they are concerned about in the capital budgeting analysis.

Is there a better way to more precisely incorporate the country risk of concern here?