Christine, Inc. is considering a capital budgeting project i…
Christine, Inc. is considering a capital budgeting project in Morocco that requires an initial outlay of 3,990,000 Moroccan dirham. The dirham is currently valued at $0.55 and is expected to remain unchanged for the next two years. In the first and second years of operation, the project will generate 2,200,000 dirham in each year. After two years, Christine will terminate the project and the expected salvage value is 6,100,000 dirham. Christine has assigned a discount rate of 21.4%.There is currently no withholding tax on remittances to the U.S., but there is a 59% chance that the Moroccan government will impose a withholding tax of 23% beginning next year.There is a 45.5% chance that the Moroccan government will pay Christine 5,390,000 dirham after two years instead of the 6,100,000 dirham that it expects.What is the probability that the Moroccan government will impose a 23% withholding tax and pay a salvage of 6,100,000 dirham?
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