Present Value and the NPV Decision Rule You run a construction firm. You have just won a contract to 1 answer below »
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Present Value and the NPV Decision Rule
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 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?
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