Chen Transport, a U.S. based company, is considering expanding its,operations into a foreign country. The required investment at Time = 0,is $10 million. The firm forecasts total cash inflows of $4 million,per year for 2 years, $6 million for the next 2 years, and then a,possible terminal value of $8 million. In addition, due to political,risk factors, Chen believes that there is a 50% chance that the gross,terminal value will be only $2 million and a 50% chance that it will be,$8 million. However, the government of the host country will block 20%,of all cash flows. Thus, cash flows that can be repatriated are 80% of,those projected. Chen’s cost of capital is 15%, but it adds one,percentage point to all foreign projects to account for exchange rate,risk. Under these conditions, what is the project’s NPV?,a. $1.01 million,b. $2.77 million,c. $3.09 million,d. $5.96 million
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