You run a construction firm. You have just won a contract to build a government

Question

You run a construction firm. You have just won a contract to build a government office complex. Building it will require an investment of $ 9.7 million today and $ 5.5 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 10.7 %.

a. What is the NPV of this? opportunity? $ million (Round two decimal places)

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

A.The firm can borrow $ 19.42 million today and pay it back with 10.7 % interest using the $ 21.5 million it will receive from the government.

B.The firm can borrow $ 24.39 million today and pay it back with10.7 %interest using the $ 21.5 million it will receive from the government.

C.The firm can borrow $ 15.2 million today and pay it back with 10.7 % interest using the $19.42 million it will receive from the government.

D.The firm can borrow $ 15.2 million today and pay it back with 10.7% interest using the $21.5million it will receive from the government.

Explanation / Answer

Year 0 1 Investment -9.7 -5.5 Payment from govt. 21.5 Cash flow -9.70 16.00 a) NPV @ 10.7% 4.75 b) Borrow 19.42 today Invest 9.7 today Cash left 9.72 today Deposit in bank 4.97 today Net cash left 4.75 today A.The firm can borrow $ 19.42 million today and pay it back with 10.7 % interest using the $ 21.5 million it will receive from the government.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.