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Category > Business & Finance Posted 04 May 2017 My Price 8.00

Badwella United Company (BUC) is worried

5.    Badwella United Company (BUC) is worried that its banana plantation in El Salvador will be expro- priated during the next 2 years. However, BUC, through an agreement with El Salvador’s central bank, knows that compensation of $100 million will be paid if the plantation is expropriated. If the expropriation does not occur, the plantation will be worth $400 million 2 years from now. A wealthy

El Salvadoran has just offered $160 million for the plantation. BUC would have used a discount rate of 23% to discount the cash flows from its Hondu- ran operations if the threat of expropriation were not present. Evaluate whether BUC should sell the plantation now for $160 million. (Hint: Set up a diagram.)

 

 

 

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Alpha Geek
(8)
Status NEW Posted 04 May 2017 11:05 AM My Price 8.00

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file 1493896440-1375265_1_636294162337014046_The-very-first-step-is-to-assume-that-the-probability-of-expropriation-is-constant-and-denote-it-as-p.docx preview (217 words )
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