Válue of a miixed stream In July 2012, Beijing had the heaviest rains in over sux de- cades. More than 2 million people were affected by the rainfall roads were flooded, and the whole transport system had to be suspended for days. The government now is offéring a flood recovery project that requires the tender to draw the flood waters out within a week. CCTech is a large manufacturer of high-pressure industrial water and the firm decided to bid for the flood recovery project. The government pumps, will pay $5 million this year and $2 million for the following four years. a. Draw the time line for the stream of cash flows. b. If the discount rate is 8% per year, what is the present value of the project? c. Suppose the project is expected to cost $10 million today. Should CCTech take the project if it is offered? Why or why not?

Válue of a miixed stream In July 2012, Beijing had the heaviest rains in over sux de- cades. More than 2 million people were affected by the rainfall roads were flooded, and the whole transport system had to be suspended for days. The government now is offéring a flood recovery project that requires the tender to draw the flood waters out within a week. CCTech is a large manufacturer of high-pressure industrial water and the firm decided to bid for the flood recovery project. The government pumps, will pay $5 million this year and $2 million for the following four years. a. Draw the time line for the stream of cash flows. b. If the discount rate is 8% per year, what is the present value of the project? c. Suppose the project is expected to cost $10 million today. Should CCTech take the project if it is offered? Why or why not?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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An officer for a large construction company is feeling nervous. The anxietyis caused by a new excavator just released onto the market. The newexcavator makes the one purchased by the company a year ago obsolete.As a result, the market value for the company’s excavator has droppedsignificantly, from $600,000 a year ago to $50,000 now. In ten years, itwould be worth only $3,000. The new excavator costs only $950,000 andwould increase operating revenues by $90,000 annually. The newequipment has a ten-year life and expected salvage value of $175,000. Thetax rate is 35%, the CCA rate, 25% for both excavators, and the requiredrate of return for the company is 14%. What is the NPV of the newexcavator? (Negative answer should be indicated by a minus sign. Do notround your intermediate calculations. Round the final answer to 2decimal places. Omit $ sign in your response.)NPV $
Ee 417.
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