Suppose a US oil company (USPetrol) wants to do a joint project with an oil company in Venezuela. USPetrol's contribution to the project is $75 million, and the project is predicted to yield $50 million per year from 2 years. The manager also thinks that the probability that the government will expropriate the project is 12% each year. When the government interferes, the cash flows will be zero onward. We assume the discount rate is 10% per year.

What is the maximum probability of expropriation for the project to be taken?