Mom and Pop Groceries has just dispatched a year's supply of groceries to the government of the Central Antarctic Republic. Payment

of $$160,000$ will be made one year hence after the shipment arrives by snow train. Unfortunately, there is a good chance of a coup

d$\text{'}$tat$,$ 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 $$160,000$ payment really worth if the odds of a coup d$\text{'}$tat are $20\%?$

Note: Do not round intermediate calculations. Round your answer to $2$ decimal places.

Complete this question by entering your answers in the tabs below.

Required A

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Is it proper to use $40\%$ as the discount rate in this situation?

Is it proper to use $40\%$ as the discount rate in this situation?