Suppose that the risk-free rate is 4 percent and the market risk premium is 6 percent, what is the correct discount rate for your construction division? (Hint: since your new division is not yet created, you should apply the information that you have above from MikeInc.

4. What is the NPV of the construction division? Should you make the investment? (Hint: note that you have perpetual cash flows that start next year, so you will need to apply the present value formula for cash flows that are never ending.