Kansas Co. wants to invest in a
project in China. It would require an initial investment of
5,000,000 yuan. It is expected to generate cash flows of 7,000,000
yuan at the end of one year. The spot rate of the yuan is $.12, and
Kansas thinks this exchange rate is the best forecast of the
future. However, there are 2 forms of country risk.
First, there is a 50% chance that the
Chinese government will require that the yuan cash...