(Solution) - You have invested in a diamond mine in Nigeria The -(2025 Original AI-Free Solution)

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You have invested in a diamond mine in Nigeria. The mine is expected to generate nominal, after-tax cash flows of £1 million per year in perpetuity at a risk-adjusted discount rate of 12.5 percent per year. Unfortunately, the Nigerian government requires that you leave each year's cash flow in the Nigerian treasury for five years after it is earned. The discount rate on five-year Nigerian bonds is 10 percent. Assume end-of-year cash flows.
a. What is the value of the diamond mine in the absence of blocked funds?
b. What is the loss in value if blocked funds earn 0 percent interest?
c. What is the loss in value if blocked funds earn 5 percent interest?
d. What is the loss in value if blocked funds earn 10 percent interest?