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trasher [3.6K]
3 years ago
14

You run a construction firm. You have just won a contract to build a government office complex. Building it will require an inve

stment of $10.2 million today and $5.1 million in one year. The government will pay you $21.5 million in one year upon the building's completion. Suppose the interest rate is 10.1%. a. What is the NPV of this opportunity? b. How can your firm turn this NPV into cash today? a. What is the NPV of this opportunity? The NPV of the proposal is $ ______________ million. (Round to two decimal places.) b. How can your firm turn this NPV into cash today? (Select the best choice below.) A. The firm can borrow $15.3 million today and pay it back with 10.1% interest using the $21.5 million it will receive from the government. B. The firm can borrow $15.3 million today and pay it back with 10.1% interest using the $19.53 million it will receive from the government. C. The firm can borrow $19.53 million today and pay it back with 10.1% interest using the $21.5 million it will receive from the governmenD. The firm can borrow $24.16 million today and pay it back with 10.1% interest using the $21.5 million it will receive from the governmen
Business
1 answer:
prisoha [69]3 years ago
4 0

Answer:

The NPV of the proposal is $4.7 million.

b. How can your firm turn this NPV into cash today?

  • C. The firm can borrow $19.53 million today and pay it back with 10.1% interest using the $21.5 million it will receive from the government

Explanation:

year                               net cash flows

0                                       -$10.2 million

1                                         $16.4 million

discount rate 10.1%

NPV = -$10.2 million + $16.4 million / 1.101 = -$10.2 million + $14.9 million = $4.7 million

the PV of the $21.5 million government payment = $21.5 / 1.101 = $19.53 million

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