You run a construction firm. You have just won a contract to build a government office building. Building it will take one year and require an investment of $9.78 million today and $5 million in one year. The government will pay you $22.5 million upon the building's completion. Suppose the cash flows and their times of payment are certain, and the risk-free interest rate is 10%. What is the NPV of this opportunity?

You run a construction firm. You have just won a contract to build a government office building. Building it will take one year and require an investment of $9.78 million today and $5 million in one year. The government will pay you $22.5 million upon the building's completion. Suppose the cash flows and their times of payment are certain, and the risk-free interest rate is 10%. What is the NPV of this opportunity?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter14: Real Options

Section: Chapter Questions

Problem 4MC

See similar textbooks

Similar questions

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 $10.00 million today and $5.00 million in one year. The government will pay you $20.00 million upon the building's completion. Suppose the cash flows and their times of payment are certain, and the risk-free interest rate is 10%. a. What is the NPV of this opportunity? b. How can your firm turn this NPV into cash today? a. What is the NPV of this opportunity? The NPV of this opportunity is $3.64 million. (Round to two decimal places.) b. How can your firm turn this NPV into cash today? (Select from the drop-down menus.) The firm can borrow firm can use cost of today, and pay it back with 10% interest using the to cover its costs today and save in cash for the firm today. of the next year. This leaves it will receive from the government. The in the bank to earn 10% interest to cover its
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 $8.96 million today and $5.00 million in one year. The government will pay you $21.50 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%. a. What is the NPV of this opportunity? b. How can your firm turn this NPV into cash today? a. What is the NPV of this opportunity? The NPV of this opportunity is $ 6.61 million. (Round to two decimal places.) b. How can your firm turn this NPV into cash today? (Select from the drop-down menus.) The firm can borrow $20.28 million today, and pay it back with 6% interest using the $21.50 million it will receive from the government. The firm can use cover its costs today and save next year. This leaves in the bank to earn 6% interest to cover its cost of of the in cash for the firm today. to
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 $9.32 million today and $5.00million in one year. The government will pay you $20.50 million upon the building's completion. Suppose the cash flows and their times of payment are certain, and the risk-free interest rate is12%. What is the NPV of this opportunity? (Round to two decimalplaces.) How can your firm turn this NPV into cash today? (Round to two decimalplaces.)
You run a construction firm. You have just won a contract to build a government office building. Building it will require an investment of $10 million today, and $5 million in one year. The government will pay you $20 million in one year upon completion. Suppose the cash flows and their time are certain, and the interest rate is 10%. What is the NPV of this opportunity?
You run a construction firm. You have just won a contract to build a government office complex. Building it will require an investment of $10.4 million today and $4.8 million in one year. The government will pay you $21.8 million in one year upon the building's completion. Suppose the interest rate is 10.2% a. What is the NPV of this opportunity? b. How can your firm turn this NPV into cash today? a. What is the NPV of this opportunity? The NPV of the proposal is $ million. (Round to two decimal places.)
You run a construction firm. You have just won a contract to build a government office complex. Building it will require an investment of $10.2 million today and $4.7 million in one year. The government will pay you $20.7 million in one year upon the building's completion. Suppose the interest rate is 10.6%. a. What is the NPV of this opportunity? b. How can your firm turn this NPV into cash today? a. What is the NPV of this opportunity? The NPV of the proposal is $million (Round to two decimal places.) CZTE
You run a construction firm. You have just won a contract to build a government office complex. Building it will require an investment of $9.5 million today and $5.5 million in one year. The government will pay you $21.7 million in one year upon the building's completion. Suppose the interest rate is 10.3%. a. What is the NPV of this opportunity? b. How can your firm turn this NPV into cash today? www. a. What is the NPV of this opportunity? The NPV of the proposal is $ million. (Round to two decimal places.) b. How can your firm turn this NPV into cash today? (Select the best choice below.) O A. The firm can borrow $19.67 million today and pay it back with 10.3% interest using the $21.7 million it will receive from the government. B. The firm can borrow $15.0 million today and pay it back with 10.3% interest using the $21.7 million it will receive from the government. O C. The firm can borrow $15.0 million today and pay it back with 10.3% interest using the $19.67 million it will…
You run a construction firm. You have just won a contract to build a government office complex. Building it will require an investment of $10.1010.10 million today and $5.105.10 million in one year. The government will pay you $21.2021.20 million in one year upon the building's completion. Suppose the interest rate is 10.2 % 10.2 %. a. What is the NPV of this opportunity? b. How can your firm turn this NPV into cash today?
Your firm has a risk-free investment opportunity where it can invest $160,000 today and receive $170,000 in one year. For what level of interest rate is this project attractive? The project will be attractive when the interest rate is any positive value less than or equal to ____________%? (Round to two decimal places.)
You currently have $50,000 in cash. You have access to a project which requires an initial investment of $50,000. One year from now this project will pay either $40,000 with a probability 50% or $100,000 with probability 50%. After this, there are no further cash flows. Assume risk neutrality and an annual discount rate of 10%. This is also the risk-free rate. (a) What is the NPV of this project? (b) Suppose you decide to finance this project with your own cash. How much money do you expect to have one year from now? (c) You have found investors who will fund the full cost of the project through equity. You will invest your cash at a risk-free rate. What is the share of equity they will ask for? How much money do you expect to have one year from now? (d) You have found investors who will give you a loan for the full cost of the project. You will invest your cash at a risk-free rate. Assume in case of default, these investors can claim all of the project's cash flows, but cannot claim…
You are considering a risk-free investment that costs $4000 and pays $5000 in one year. You can either pay all cash for the investment or you can borrow part and pay cash for the other part. If you borrow $2000, you will be required to pay back $2080 in one year. The risk-free rate is 4%. What is the project’s NPV? Is the NPV affected if you borrow some of the funds?
You are considering an investment in a clothes distributer. The company needs $105,000 today and expects to repay you $120,000 in a year from now. What is the IRR of this investment opportunity? Given the riskiness of the investment opportunity, your cost of capital is 17%. What does the IRR rule say about whether you should invest? What is the IRR of this investment oppurtunity? The IRR of this investment opppurtunity is ____%