You are currently working in a construction company. Your company have been appointed to aBuild-Operate-Transfer project the school for the renovation of a student hostel. The contractinvolves an 80%-20% financing, in which your company will be financing 20% of the initial cost andwill be allowed to collect the lease from the tenants for the first 7 years. You have received 3different renovation designs for the hostel, each with different initial cost and projected yearlyreturn from the concession as shown in Table 1 below.Table 1: Projected yearly return based on the design type (RM `million)Design A(Initial cost RM5 mil)290,000290,000300,000290,000310,000320,000330,000Design B(Initial cost RM4.8 mil)300,000290,000290,000280,000290,000280,000300,000Design C(Initial cost RM5.5 mil)300,000310,000310,000300,000290,000300,000290,000Year123467Your boss had requested you to select the best design that will give the best profit to thecompany. For this matter, you have decided to use Net Present Value (NPV) method todecide which is the best design to be used.A) Evaluate the NPV for design A, B and C. Assume that the maintenance cost of the hostel forall the design is 10% from each yearly return.

The best alternative is the one with the highest NPV. NPV = Present value of future cash flows -…

Your boss had requested you to select the best design that will give the best profit to the company. For this matter, you have decided to use Net Present Value (NPV) method to decide which is the best design to be used. A) Evaluate the NPV for design A, B and C. Assume that the maintenance cost of the hostel for all the design is 10% from each yearly return.

Your boss had requested you to select the best design that will give the best profit to the company. For this matter, you have decided to use Net Present Value (NPV) method to decide which is the best design to be used. A) Evaluate the NPV for design A, B and C. Assume that the maintenance cost of the hostel for all the design is 10% from each yearly return.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 9P

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