A turnkey contractor was awarded a contract to construct a bridge crossing the river which separated the

Fantastic news! We've Found the answer you've been seeking!

Question:

A turnkey contractor was awarded a contract to construct a bridge crossing the river which separated the town with deferred terms of payment over a period of 4 years after the completion of the bridge. The contractor is responsible to maintain the bridge before handing it over to the authority. The consultant engineer has proposed 2 different types of bridge for the contractor to consider. The 2 proposals have 2 different estimated cash-flow as follows:

Using 4 diff. Evaluation methods, suggest the proposal giving the highest return to the contractor. Assume that the cost of fund to the contractor is at 10% per annum. Give your reasons. What happen if the cost of fund is estimated to increase to 18%?