Question

c. The bridge project must that is estimated to require 2 years to complete is about to go underway. The bridge is projected to cost $48 million. It will need to begin construction in 18 months. Rights-of-way acquisition, surveying, and permitting have already been completed and paid for by the program. There will be 2 additional project phases: 1) planning & design, 2) construction. Each will require payment at the end of the phase. The projected cost of the 1st phase of the project is $5.5 million. The 1st phase is expected to need the entire 18 months prior to the start of construction and must be completed before construction can begin. The 2nd phase is projected to cost the remaining $42.5 million. Its construction is also expected to be completed at the end of the 2-year period following planning & design. There will need to be a payout of 30% of the cost of construction at the end of the 1st year of construction project. The remaining 70% will be paid at the completion of the project. Assuming a discount rate of 4.25% and monthly compounding, what amount will need to be funded today to meet the complete project’s funding requirements on the payment due dates.

Step 1

As a first step let's map the requirement of cash flows in future.

- Planning phase will require a payment of $ 5.50 mn on completion i.e. 18 months from now.
- Construction phase will require two payments:
- First payment of 30% of $ 42.5 mn = $ 12.75 mn, at the end of first year of the construction project. Effectively this payment occurs at 18 + 12 = 30 months from now.
- Second payment of balance amount of 70% of $ 42.5 mn = $ 29.75 mn at the end of 2 years after construction commences. Effectively this payment occurs at 18 + 24 = 42 months from now.

Step 2

Interesr rate = 4.25% per annum

Compounding frequency ; Monthly

Hence discount rate = r = interest rate per period = 4.25%/12 = 0.3542%

Step 3

The present value (PV) of any future cash flow (FV) is given by the formula as shown on whiteboard, where r is the disc...

Tagged in

Q: How I can resolve this problem. The management of a firm wants to introduce a new product. the prod...

A: a. what is the break-even level of outpur for each scale of operation?In the first scale of operatio...

Q: Everest Inc. is presently enjoying relatively high growth because of a surge in the demand for its n...

A: All financials below are in $.D0 = 0.85There are three stages of growth: g1 =28% for next two years ...

Q: Three years ago, you founded Outdoor Recreation, Inc., a retailer specializing in the sale of equipm...

A: All financials re in $ mn. Number of shares are in mn. Share price, earnings per share are in $.Fore...

Q: A devoted Indiana basketball fan needs $11,200.00 to attend the Final Four exactly one year from tod...

A: As a first step let's assign a symbol to each of the information we have:Future value, FV = $ 11,200...

Q: NOTE: You already replied on this question with the answers as indicated below. Unfortunately, all a...

A: Part (a)All financials below are in $ mn.The net cash flow at time 0 if the old equipment is replace...

Q: You need to borrow $139,970 to buy a Ferrari. The current loan rate is 4.99%compounded monthly and y...

A: Calculation of size of monthly payment: Excel spread sheet for PMT calculation:

Q: If Wild Widgets, Inc., were an all-equity company, it would have a beta of .90. The company has a ta...

A: Cost of Debt:Cost of Debt is the amount or rate which a company bears on the borrowings. It also sta...

Q: How do I calculate a company’s free cash flow if it is all-equity financed?

A: In case the firm is fully equity financed, free cash flow = Cash flow free from all kind of claims =...

Q: What is the present value of end-of-year cash flows of $9,000 per year, with the first cash flow rec...

A: Cash flow: It denotes to the sum of cash that keeps flowing in the business and out of business duri...

Sorry about that. What wasn’t helpful?