You have an opportunity to invest $104, 000 now in return for $79, 500 in one ye
ID: 2627015 • Letter: Y
Question
You have an opportunity to invest $104, 000 now in return for $79, 500 in one year and $29, 000 in two years. If your cost of capital is 9.3%, what is the NPV of this investment? The NPV will be $ . (Round to the nearest cent.) You run a construction firm. You have just won a contract to build a government office complex. Building it will require an investment of $10.3 million today and $5.3 million in one year. The government will pay you $21.4 million in one year upon the building's completion. Suppose the interest rate is 10.2%. What is the NPV of this opportunity? follow can your firm turn this NPV into cash today? What is the NPV of this opportunity? The NPV of the proposal is $ million. (Round to two decimal places.) follow can your firm turn this NPV into cash today? (Select the best choice below.) The firm can borrow $15.6 million today and pay it back with 10.2% interest using the $21.4 million it will receive from the government. The firm can borrow $24.23 million today and pay it back with 10.2% interest using the $21.4 million it will receive from the government. The firm can borrow $15.6 million today and pay it back with 10.2% interest using the $19.42 million it will receive from the government. The firm can borrow $19.42 million today and pay it back with 10.2% interest using the $21.4 million it will receive from the government.Explanation / Answer
Hi,
Please find the detailed answer as follows:
Part 1:
NPV is the difference between present value of cash inflows and present value of cash outflows.
NPV = Cash Ouflows/(1+Discount Rate)^n+ Cash Inflows/(1+Discount Rate)^n
NPV = -104000 + 79500/(1+.093)^1 + 29000/(1+.093)^2 = -6989.5 or -6989
Answer is -$6989.5 or -6989
Part 2:
a)
NPV is the difference between present value of cash inflows and present value of cash outflows.
NPV = Cash Ouflows/(1+Discount Rate)^n+ Cash Inflows/(1+Discount Rate)^n
NPV = -10.3 -5.3/(1+.102)^1 + 21.4/(1+.102)^1 = $4.31 million
Answer for Part A is $4.31 million
b)
You will have to calculate the Present Value of 21.4 million in order to make a decision.
Present Value = 21.4/(1+.102)^1 = $19.42 million (amount to be borrowed today).
Option D is the correct answer.
Thanks.
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