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Question regarding Net present Value nVP?
You have just won a contract to build a government office building it will require an investment of $10 million today and $5 million in one year. The government will pay you $20 million in one year upon the buildings completion. Suppose the interest rate is 10%. a. What is NPV of this opportunity? b. How can your firm turn this NPV into cash today?
Public Comments
- a. What is NPV of this opportunity? NPV = -10,000,000 + [-5,000,000 + 20,000,000](1+10%)^-1 NPV = -10,000,000 + [15,000,000](1.10)^-1 NPV = -10,000,000 + [15,000,000](0.9091) NPV = -10,000,000 + 13,636,363 NPV = $3,636,363
