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Government XYZ is considering the addition of a road segment to the regional road system Two options are available and your task is to determine which of these options that is preferable from

Government XYZ is considering the addition of a road segment to the regional road system. Two options are available and your task is to determine which of these options that is preferable from a financial perspective. Both projects have an estimated life-span of 30 years. The projected cash flows for the two options are outlined in the Table below. Assume that the discount rate has been set at 8 percent.

Description of Cash Flow

Years passed before cash flow is assumed to accrue

Option 1: Projected cash flows

Option 2: Projected cash flows

Initial construction outlay

1

-$10,000,000

-$10,000,000

Maintenance outlay

10

-$200,000

-$900,000

Maintenance outlay

15

-$800,000

-$100,000

Salvage (inflow)

30

$200,000

$1,000,000

Which of the two projects would you recommend based on NPV analysis?

 

Apr 04 2020 Read more Less More

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