Weston Corporation, a US multinational, is considering building a new assembly plant in Thailand at a total cost of 300 million Baht to be financed with 50% debt and 50% equity. Managers plan to raise half of the new debt with the sale of bonds in the US paying 8% interest annually and principal repayment in five years. The other half of the new debt will come from the sale of bonds in Thailand paying 10% interest annually and principal repayment in five years. The current spot rate is 30 Baht/USD and the Baht is expected to appreciate against the dollar by 2% per year over the next five years. Westons marginal income tax rate is 30% in both the US and Thailand.

1. Weston managers are concerned about political risk in Thailand and its potential negative impact on the value of the project. How would you recommend Weston managers take account of this possibility, i.e. build the political risk into the NPV calculation?