1. **State the problem:** We want to decide if reinvesting 2 million to restore earnings to 2 million is worthwhile given a cost of equity $k_e = 17\%$ and future earnings of 1 million per year indefinitely. 2. **Formula used:** The Net Present Value (NPV) of an infinite series of cash flows is given by the sum of discounted future earnings minus the initial investment. 3. **Express NPV:** $$\text{NPV} = -2 + \frac{1}{1+r} + \frac{1}{(1+r)^2} + \frac{1}{(1+r)^3} + \cdots$$ where $r = 0.17$ (cost of equity). 4. **Recognize geometric series:** The infinite sum of discounted earnings is a geometric series with first term $a = \frac{1}{1+r}$ and common ratio $x = \frac{1}{1+r}$. 5. **Sum of geometric series:** $$\sum_{n=1}^\infty a x^{n-1} = \frac{a}{1-x}$$ Here, $$a = \frac{1}{1+r}, \quad x = \frac{1}{1+r}$$ 6. **Calculate sum:** $$\sum = \frac{\frac{1}{1+r}}{1 - \frac{1}{1+r}} = \frac{\frac{1}{1+r}}{\frac{r}{1+r}} = \frac{1}{r}$$ 7. **Substitute back into NPV:** $$\text{NPV} = -2 + 1 \times \frac{1}{r} = -2 + \frac{1}{0.17} \approx -2 + 5.88 = 3.88$$ 8. **Interpretation:** Since NPV is positive ($3.88$ million), reinvestment is financially beneficial. **Summary:** Investing 2 million now yields a positive net present value of about 3.88 million, so reinvestment should be undertaken.