Question
You run a construction firm. You have just won a contract to build a government office building. It will take one year to construct it
You run a construction firm. You have just won a contract to build a government office building. It will take one year to construct it requiring an investment of $10.68 million today and $5.00 million in one year. The government will pay you $23.50 million upon the building's completion. Suppose the cash flows and their times of payment are certain, and the risk-free interest rate is
6%.
- What is the NPV of this opportunity?
The NPV of this opportunity is ________million. (Round to two decimal places.)
b. How can your firm turn this NPV into cash today?
The firm can borrow _________ million today, and pay it back with 6% interest using the
___________million it will receive from the government. The firm can use __________million
of the $______ million to cover its costs today and save $________millionin the bank to earn 6%
interest to cover its cost of $______ million next year. This leaves $__________million in cash for the firm today.
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