Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Mom and Pop Groceries has just dispatched a year's supply of groceries to the government of the Central Antarctic Republic. Payment of $250,000 will be

image text in transcribed
Mom and Pop Groceries has just dispatched a year's supply of groceries to the government of the Central Antarctic Republic. Payment of $250,000 will be made one year hence after the shipment arrives by snow train. Unfortunately, there is a good chance of a coup d'etat, in which case the new government will not pay. Mom and Pop's controller therefore decides to discount the payment at 40% rather than at the company's 12% cost of capital. a. is it proper to use 40% as the discount rate in this situation? b. How much is the $250,000 payment really worth if the odds of a coup d'tat are 25% ? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. (4) Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. How much is the $250,000 payment really worth if the odds of a coup d'etat are 25% ? Note: Do not round intermediate calculations. Round your answer to 2 decimal places

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Oxford Handbook Of State Capitalism And The Firm

Authors: Mike Wright, Geoffrey T. Wood, Alvaro Cuervo-Cazurra, Pei Sun, Ilya Okhmatovskiy, Anna Grosman

1st Edition

0198837364, 978-0198837367

More Books

Students also viewed these Finance questions

Question

Describe the organizational influences on ethical conduct

Answered: 1 week ago