Considering addition of road segment to regional road system

Assignment Help Financial Management

Reference no: EM131925503

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.

Desciption of cash flow/ Yrs passed before casf flow is assumes to accrue: 1/Option:

Option 1 / 2 Projected Cash flow:

Initial Construction Outlay/ 1 yr

Option 1 ($10,000,000)

Option 2 ($10,000,000)

Maintenance Outlay/ 10yrs

Option 1 (($200,000)

Option 2 ($900,000)

Maintenance Outlay 15 yrs:

Option 1 ($8000,000)

Option 2 ($1000,000)

Salvage (inflow) 30Yrs

Option 1 $200,000

Option 2 $1,000,000

Which of the two projects would you recommend based on NPV analysis? To receive credit you need to provide support for your answer by providing the NPV for each of the two options.

Reference no: EM131925503

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