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need help with the bottom half of the questions How Country Risk Affects NPV. Monk, Inc. is considering a capital budgeting project in Tunisia. The
need help with the bottom half of the questions
How Country Risk Affects NPV. Monk, Inc. is considering a capital budgeting project in Tunisia. The project requires an nitial outlay of 1 million Tunisian dinar by the parent company; the dinar is currently valued at $.70. In the first and second years of operation, the project will generate 700,000 dinar in each year. After two years, Monk will terminate the project, and the expected salvage value is 300,000 dinar. Monk has assigned a discount rate of 12 percent to this project. The 3 following additional information is available There is currently no withholding tax on remittances to the U.S, but there is a 20 percent chance that the Tunisian government will impose a withholding tax of 10 percent beginning next year Withholding taxes No There is a 50 percent chance that the Tunisian government will pay Monk 100,000 dinar after two years instead of the 300,000 dinar it Probability of Outcome alvage value (paid by Tunisian government) Occurin 300,000 dinar 000 dinar 50% 50% 13 14 The required rate of return is 12%, the current spot rate is SO 70 dinar and the value of the dinar is expected to remain unchanged over the 15 I next 2 years 12% S0.70 Current spot rate, USD/dinar 18 19 21 Here is the setup for each scenario, There are 4 possible outcomes 0% withholding. 300,000 dinar salvage 0% withholding, 100.000 dinar salvage 10% withholding, 300,000 dinar salvage 10% withholding, 100,000 dinar salvage Using the templates below, determine the NPV under each of the 4 scenarios: 25 28Max Possible Earned SCENARIO1 SCENARIO 2Step by Step Solution
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