Globex Corporation is a multinational construction company based in Istanbul, Turkey. The company operates primarily in Turkey, Eurasia, and the Middle East regions. The management team is considering two new mutually exclusive projects.

• The first project involves a giant construction project of a bridge that crosses the Bosphorus Strait in Istanbul. The firm would be a subcontractor and would build only part of the motorway that will connect the bridge to a main motorway system on the Asian side of Istanbul.
• The second investment option is a construction project of a sports center in Qatar that will be used for the FIFA World Cup. The project is a high-profile project and the firm can gain a significant reputation if the project is successful.

Each project requires an $80,000,000 initial investment for the investors of the firm and their IRR and payback figures are shown below.

	IRR	Payback
Bridge Project	18.2%	5 years
Sports Center Project	25.5%	3 years

Required:

1. Define working capital and discuss the effects of both projects on the firm’s working capital.
2. Define political risk and discuss the political risk for both projects and how a firm would mitigate this risk.
3. Define mutually exclusive projects. Identify and explain which project you would recommend based on the information presented, assuming both projects have the same level of political risk.
4. What other additional information would be helpful to evaluate these projects? Explain your answer.
5. Define hurdle rate and explain how a firm develops its hurdle rate.

The planned completion date for the bridge project is May, Year 1, and for the sports center, the completion date is December, Year 3. The sports center project also requires $1,000,000 of additional working capital in the short term. The hurdle rate for the company is 10%.

Answer rating: 100% (QA)

Ans A Working capital means the funds required for day to day operation Business will require funds to invest in inventory receivable certain level of ... View the full answer