In July 2012, Beijing had the heaviest rains in over six decades. More than 2 million people were affected by the rainfall, roads were flooded, and the whole transport system had to be suspended for days. The government now is offering a flood recovery project that requires the tender to draw the flood waters out within a week. CCTech is a large manufacturer of high-pressure industrial water pumps, and the firm decided to bid for the flood recovery project. The government will pay $5 million this year and $2 million for the following four years.
a. Draw the time line for the stream of cash flows.
b. If the discount rate is 8% per year, what is the present value of the project?
c. Suppose the project is expected to cost $10 million today. Should CCTech take the project if it is offered? Why or why not?