You have been asked to analyze the net present value of building a bridge in Asia. You estimate that building the bridge will cost you $50 million up front and that it will generate $4 million in cash flows next year via toll collection and that these cash flows will grow 10% a year for the following four years (Years 2-5). After year 5, you expect the cash flows to continue to grow at the inflation rate (2%). Assuming a cost of capital of 8%, what is the NPV of this project to you? Would you recommend taking on this project and why?

You have been asked to analyze the net present value of building a bridge in Asia. You estimate that building the bridge will cost you $50 million up front and that it will generate $4 million in cash flows next year via toll collection and that these cash flows will grow 10% a year for the following four years (Years 2-5). After year 5, you expect the cash flows to continue to grow at the inflation rate (2%). Assuming a cost of capital of 8%, what is the NPV of this project to you? Would you recommend taking on this project and why?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 20P

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