Question
Trax Construction Company is considering a number of different development projects (P1 to P5). The cash outflows that would be required to complete each project
Trax Construction Company is considering a number of different development projects (P1 to P5). The cash outflows that would be required to complete each project are indicated in the table, along with the expected net present value of each project and the available funds to invest in these projects for each year (all in millions of dollars).
| P1 | P2 | P3 | P4 | P5 | Available Cash | |
| Year 1 | $8 | $10 | $12 | $4 | $14 | $40 |
| Year 2 | 6 | 8 | 6 | 3 | 6 | 25 |
| Year 3 | 3 | 7 | 6 | 2 | 5 | 16 |
| Year 4 | 0 | 5 | 6 | 0 | 7 | 12 |
| NPV | $12 | $15 | $20 | $9 | $23 |
The companys policy is to choose their projects to maximize their expected NPV. Formulate and solve the BIP model on spreadsheet. Determine the following:
a) Which projects should be pursued?
b) What is the possible maximum NPV?
c) How much is the possible excess funds in Year 1 if any?
d) How much is the expected investment cost in Year 4?
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Bond Markets Analysis And Strategies
Authors: Frank J Fabozzi
8th Edition
013274354X, 9780132743549
