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Problem 3 (7 marks) The city has asked for bids for a new infrastructure project. The project is to take 5 years to complete. Two
Problem 3 (7 marks) The city has asked for bids for a new infrastructure project. The project is to take 5 years to complete. Two of the companies that will bid for the project have provided the following information: Company A Company A Company B Year 0 400,000 400,000 1 500,000 514,000 500,000 514,000 3 500,000 514,000 4 500,000 514,000 5 500,000 514,000 Both companies will require $400,000 at the start of the project and all other cash flows will occur at the start of each year. Company A has a required rate of return of 12% per year while company B has a required rate of return of 14% per year. The city will award the contract and pay the full bid price at the start of the project. What is the bid price and which project will be accepted? Show your time lines and your work
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