You run a construction firm. You have just won a contract to build a goverment office building. It will take one year to construct it, requiring 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-bree interest rate is 7%. a. What is the NPV of this opportunity? b. How can your firm tum this NPV into cash today? 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 tum this NPV into cash today? (Select from the drop-down menus) The fim 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 & will receive from the government. The firm can use next year. This leaves in cash for the firm today of the to cover its costs today and

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 $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
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 $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
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