A company has agreed to build and operate a ferry service for a regional government The company will invest $10 million at the outset, and a further $8 million after 1 year. The ferry will then come into operation and the company will receive payments at the end of each year, the first payment occurring at the end of the second year of the project. The amount of payment at the end of the second year will be $4 million, increasing by $0.5 million in each of the subsequent years until the annual payment is $7 million, after which the payments will reduce by $1 million each year. When the payments have reduced to zero, the company's involvement in the project will end. Calculate the net present value of the project at a rate of interest of 6% p.a. effective. Note: You should show your working and determine the present value of income using annuity functions. 161