Question
You run a construction firm. You just won a contract to build a governent office building. Building it will require one year and require an
You run a construction firm. You just won a contract to build a governent office building. Building it will require one year and require an investment of $9.79 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 9%.
a) What is the NVP of this opportunity?
The NPV of this opportunity is $_____ million. (round to two decimal places)
b) The firm can borrow _____ today and pay it back with 8% interest using the _____ it will recieve from the government. The firm can use _____ of the _____ to cover its costs today and save _____ in the bank to earn 8% interest to cover its costs of _____ next year. This leaves _____ in cash for the firm today.
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