You run a construction firm. You have just won a contract to construct a government office building.
Question:
You run a construction firm. You have just won a contract to construct a government office building. It will take one year to construct it, requiring an investment of \($9.77\) million today and
\($5\) million in one year. The government will pay you \($21.50\) million upon the building’s completion.
Suppose the cash flows and their times of payment are certain, and the risk-free interest rate is 7%.
a. What is the NPV of this opportunity?
b. How can your firm turn this NPV into cash today?
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a To calculate the Net Present Value NPV of this construction project we need to discount all the ca...View the full answer
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