Your boss had requested you to select the best design that will give the best profit to the company. For this matter, you have decided to use Net Present Value (NPV) method to decide which is the best design to be used. A) Evaluate the NPV for design A, B and C. Assume that the maintenance cost of the hostel for all the design is 10% from each yearly return.
Your boss had requested you to select the best design that will give the best profit to the company. For this matter, you have decided to use Net Present Value (NPV) method to decide which is the best design to be used. A) Evaluate the NPV for design A, B and C. Assume that the maintenance cost of the hostel for all the design is 10% from each yearly return.
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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Transcribed Image Text:You are currently working in a construction company. Your company have been appointed to a
Build-Operate-Transfer project the school for the renovation of a student hostel. The contract
involves an 80%-20% financing, in which your company will be financing 20% of the initial cost and
will be allowed to collect the lease from the tenants for the first 7 years. You have received 3
different renovation designs for the hostel, each with different initial cost and projected yearly
return from the concession as shown in Table 1 below.
Table 1: Projected yearly return based on the design type (RM `million)
Design A
(Initial cost RM5 mil)
290,000
290,000
300,000
290,000
310,000
320,000
330,000
Design B
(Initial cost RM4.8 mil)
300,000
290,000
290,000
280,000
290,000
280,000
300,000
Design C
(Initial cost RM5.5 mil)
300,000
310,000
310,000
300,000
290,000
300,000
290,000
Year
1
2
3
4
6
7
Your boss had requested you to select the best design that will give the best profit to the
company. For this matter, you have decided to use Net Present Value (NPV) method to
decide which is the best design to be used.
A) Evaluate the NPV for design A, B and C. Assume that the maintenance cost of the hostel for
all the design is 10% from each yearly return.
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