What is the present value of this project to the company

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Reference no: EM132004371

Roadworthy Inc. is a bridge construction company. It has been contractesd on a $75 million bridge building project in Edmonton. The contract terms specified that the company must complete the project within three years, and the company will be paid at the end of each year according to the percentage completion on the bridge. For example, at the end of the first year of construction, the company will be paid 25% x $75 million = $18.75 million, as per the company's submitted bid, which indicated the following completion schedule:

  • Year 1: 25% completion
  • Year 2: 75% completion
  • Year 3: 100% completion

The contract terms also specified that should the project fall behind schedule, Roadworthy will be assessed a penalty of $15 million for each year of delay. The discount rate on this project is 15%.

a. Assuming the company completes the project on schedule, what is the present value of this project to the company?

Reference no: EM132004371

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