Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Textbook Question
Chapter 3, Problem 9P
You run a construction firm. You have just won a contract to construct a government office building. It will take one year to construct it, requiring an investment of $10 million today and $5 mi lion in one year. The government will pay you $20 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?
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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 $0.79 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 7%.
a. What is the NPV of this opportunity?
b. How can your firm tum this NPV into cash today?
a. What is the NPV of this opportunity?
The NPV of this opportunity is 5 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
save
today, and pay it back with 7% interest using the
in the bank to eam 7% interest to cover its cost of
it will receive from the govemment. The firm can use
next year. This leaves
in cash for the firm today
of the
to cover its costs today and
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 $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.)
Chapter 3 Solutions
Corporate Finance
Ch. 3.1 - Prob. 1CCCh. 3.1 - If crude oil trades in a competitive market, would...Ch. 3.2 - How do you compare costs at different points in...Ch. 3.2 - Prob. 2CCCh. 3.3 - What is the NPV decision rule?Ch. 3.3 - Why doesnt the NPV decision rule depend on the...Ch. 3.4 - Prob. 1CCCh. 3.4 - Prob. 2CCCh. 3.5 - If a firm makes an investment that has a positive...Ch. 3.5 - Prob. 2CC
Ch. 3.5 - Prob. 3CCCh. 3.A - The table here shows the no-arbitrage prices of...Ch. 3.A - Suppose security Chas a payoff of 600 when the...Ch. 3.A - Prob. A.3PCh. 3.A - Prob. A.4PCh. 3.A - Prob. A.5PCh. 3.A - Consider a portfolio of two securities: one share...Ch. 3.A2 - Why does the expected return of a risky security...Ch. 3.A2 - Prob. 2CCCh. 3.A3 - Prob. 1CCCh. 3.A3 - Prob. 2CCCh. 3 - Honda Motor Company is considering offering a 2000...Ch. 3 - You are an international shrimp trader. A food...Ch. 3 - Prob. 3PCh. 3 - Prob. 4PCh. 3 - You have decided to take your daughter skiing in...Ch. 3 - Suppose the risk-free interest rate is 4%. a....Ch. 3 - You have an investment opportunity in Japan. It...Ch. 3 - Your firm has a risk-free investment opportunity...Ch. 3 - You run a construction firm. You have just won a...Ch. 3 - Your firm has identified three potential...Ch. 3 - Your computer manufacturing firm must purchase...Ch. 3 - Prob. 12PCh. 3 - Prob. 13PCh. 3 - Prob. 14PCh. 3 - Prob. 15PCh. 3 - An Exchange-Traded Fund (ETF) is a security that...Ch. 3 - Consider two securities that pay risk-free cash...Ch. 3 - Prob. 18P
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