suppose a firm has a required return of 20 percent, and predicts a 5 million perpetuity from an investment of 20$ million in Spain. There is a 40% likelihood of expropriation in Year 4. Assume that all cash inflows occur at the end of each year and that the expropriation, if occurs, will occur prior to the year 4 inflow or not at all. There is no compensation in the event of expropriation.

Based on the probability of expropriation, should the company engage in this project?

A. Yes, the 40% chance of expropriation means this is a positive NPV scenario

B. No, the 40% chance of expropriation means this is not a positive NPV scenario.