Suppose a firm projects cash flows of $2.5 million,$3 million,and $4 million for years 1,2,and 3,respectively,on an initial investment in Ecuador of $22 million.The firm projects a perpetuity of $5 million in years 4 and beyond.If the required return on this investment is 17%,how large does the probability of expropriation in year 5 have to be before the investment has a negative NPV? Expected compensation in the event of expropriation is $3 million.

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The Answer of Suppose a firm projects cash flows of $2.5 million,$3 million,and $4 million for years 1,2,and 3,respectively,on an initial investment in Ecuador of $22 million.The firm projects a perpetuity of $5 million in years 4 and beyond.If the required return on this investment is 17%,how large does the probability of expropriation in year 5 have to be before the investment has a negative NPV? Expected compensation in the event of expropriation is $3 million.

Suppose a Firm Projects Cash Flows of $2