Considering bidding on government contract to rebuild bridge

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Reference no: EM131307786

The company that you work for is considering bidding on a government contract to rebuild an old bridge that has reached the end of its useful life. The two-year contract will pay the firm $11.5 million at the end of the second year. The project requires an initial cash outlay (or expenditure) of $7.0 million. The annual expenses for years 1 and 2 are estimated at $1.5 million. Your employer uses an interest rate of 7% to value similar projects. Because the cash inflow generated by the contract (for your employer) of $11.5 million when the contract ends exceeds the total cash outflows ($7.0 million + $1.5 million + $1.5 million), your employer’s financial manager believes that it should accept the contract. Do you agree? Why? Why not? How would you estimate the value of this project? Explain/discuss.

Reference no: EM131307786

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Considering bidding on government contract to rebuild bridge : The company that you work for is considering bidding on a government contract to rebuild an old bridge that has reached the end of its useful life. The two-year contract will pay the firm $11.5 million at the end of the second year. How would you est..

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