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Suppose a firm projects a $5.2 million perpetuity from an investment of $21 million in Spain. If the required return on this investment is 19
Suppose a firm projects a $5.2 million perpetuity from an investment of $21 million in Spain. If the required return on this investment is 19 percent, how large does the probability of expropriation in year 4 have to be before the investment has a negative NPV? Assume that all cash inflows occur at the end of each year and that the expropriation, if it occurs, will occur prior to the year4 cash inflow or not at all. There is no compensation in the event of expropriation.
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