Building a Bridge - 1
You are the project manager of a construction company. You are considering building a bridge across the river. You estimate that the construction project will take 3 years, with $10 million due each year. Upon completion of the project, the tolls collected from the bridge will be valued at $4 million per year. It is estimated that the bridge will last for 10 years, before it will need to be replaced. The cost of dismantling the bridge will be offset by the price of the reclaimed materials.
Assume that the discount rate is 5% per year. The Net Present Value is calculated in the 0th year.
1) What is the Net Present Value of the cost of $10 million in the first year?
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1 solution
The NPV = $10 Million / DF
Where DF = Discount Factor = (1 + 5%)^1 = 1.05^1 = 1