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 in the bank to earn 6% interest to cover its cost of next year. This leaves of the in cash for the firm today. to

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
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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 $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
Transcribed Image Text: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
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