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Mom and Pop Groceries has just dispatched a year's supply of groceries to the government of the Central Antarctic Republic. Payment of $ 1 6

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'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'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.
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Required B
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?
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