The City of Nashville tasked a manufacturing company to build a new loading facility on the river. The manufacturing company estimates that the initial cost of the project to be $250 million (to be paid at T=0). The project is expected to generate $50 million every year starting in year 3 for the next 50 years and the cash flows will be generated at the end of each year. The project has a WACC of 11%.

A)What is the NPV of such a project?

B)Due to the riskiness of the project during COVID-19, the City of Nashville offers the manufacturing company an option to walk away from the build 2 years from today. The company would still invest the $250 million at T=0, but if decided to walk away after 2 years, they would give up all future benefits of the project. The City of Nashville would instead issue a one-time check for $189 million to the manufacturing company. The decision makers at the manufacturing company know that project earnings can change with the uncertainty and calculated the annualized volitility of changes in the PV of the project benefits is 50% per year. What is the dollar value of the $189 million guarantee offered by the city and should the company proceed with the project?