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What is the opportunity cost of the blocked funds

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Consider the example of blocked funds in the chapter's Neverland project. Again, assume blocked funds (50 percent of operating cash flow) earn zero interest in Hook's treasure chest. Suppose an investment in Hook's treasure chest is not risk-free and that the market's required return on Neverland bonds from Hook's treasury is 40 percent rather than 37.5 percent. What is the opportunity cost of the blocked funds, assuming the international parity conditions hold? What is the value of the project with the blocked funds?

Reference no: EM13871656

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