You run a construction firm. You have just won a contract to build

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 $10 million today and $5 million 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?

SOLUTION PREVIEW

NPV  =	PV Benefits -  PV Cost
PV Benefits:
Rate =	10%
Nper =	1
FV =	-20

File name:  You run a construction firm.xls      File type: xls  PRICE: $6