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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 $225.000 will be
Mom and Pop Groceries has just dispatched a year's supply of groceries to the government of the Central Antarctic Republic. Payment of $225.000 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 50%. rather than at the company's 12% cost of capital. a. Is it proper to use 40% as the discount rate in this situation? Yes b. How much is the $225,000 payment really worth if the odds of a coup d'tat are 25%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Payment value
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