7. To raise some revenue to fund other operations, Monroe County is considering turning the stretch of IN-37 that passes through the county into a toll road. The county would lease the road for an initial fixed payment of $1 million in year 0, and yearly lease payments of $500,000 in years 1 through 25. In year 26, the toll road reverts back to the county. You are an investor considering whether to contract with the city to lease and operate the toll road. The county has given you the following information. All project data, and appreciation rates, are in NOMINAL terms. The inflation rate is 3%. The lessee will have two options for the collection of tolls. First, they could install manual toll- booths in which employees would collect tolls at each end of the stretch of road, and charge a flat rate of $2.50 for cars ($5.00 for trucks) to use the entire length of road. These tolls would be adjusted periodically to account for inflation, and the expectation is that they would bring in $1.25 million in year 1, increasing at 5% annually in years 2-25. Second, they could replace some of the manual tolls in the first option with I-Zoom electronic toll booths, in which case $2.00 per car ($4.00 per truck) would automatically be debited each time a car (or truck) with a transponder went under the I-Zoom toll. Vehicles that didn't have the device would be charged $3.00 per car ($6.00 per truck). This type of toll system is expected to yield revenue of $1.2 million in year 1, increasing at 5% annually in years 2-25. The county has stipulated that the lessee of the road will be responsible for constructing toll booths (which will cost $320,000 in year 0 for all manual toll booths, or $618,000 in year 0 if a mix of manual and I-Zoom booths are used), upgrading the road ($475,000 each year for years 1, 2, 3, and 4), and maintaining the road (starting at $125,000 per year in year 1, increasing at 6% per year for years 5-25). In addition, they will have to pay for employees to collect and maintain the tolls (manual tolls only: $354,000 starting in year 1, increasing at 5% annually; manual and I-Zoom: $57,000 starting in year 1, increasing at 6% annually). Finally, a tax of 8% of gross toll revenue would be paid to the state of Indiana annually. Your Task: Calculate the Net Present Value of this project under toll booth option 1 (all manual booths) if the NOMINAL discount rate is 8%. Next, recalculate the NPV under option 2 (manual and I-Zoom booths). Should you invest in this project, and if so, which type of toll system should be built