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Required return on investment

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Suppose a project by a US firm in in Brazil is expected to generate a $7 million annuity over 5 years from an initial investment of $20 million. If the required return on this investment is 10%, 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 year 4 cash flow or not at all. In the event of expropriation, neither the year 4 cash flow nor the year 5 cash flow will occur

Reference no: EM132557332

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