Mom and Pop Groceries has just dispatched a year’s supply of groceries to the government of the Central Antarctic Republic.

Set5.1. Mom and Pop Groceries has just dispatched a year’s supply of groceries to thegovernment of the Central Antarctic Republic. Payment of $250,000 will be made oneyear hence after the shipment arrives by snow train. Unfortunately there is a goodchance of a coup d’etat in which case the new government will not pay. Mom andPop’s controller therefore decides to discount the payment at 40%, rather than at thecompany’s 12% cost of capital.a) What’ wrong with using a 40% rate to offset political risk?b) How much

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