Question

The Satellite System for the United States is estimated to cost $1 Billion. The winner bidder has committed to complete it in four years with the following milestone payments:
First payment: $100m at the start of first year.
Second Payment: $350m at the end of second year
Third payment: $300m at the end of third year
Final payment: $250m on completion at end of 4th year.
The annual operations &maintenance after completion is estimated to be $60 million, payable at the end of each year and with 5% annual increase thereafter.Your customer has committed to pay $250 million annually at the end of the each year after completion, with the first payment at the end of 5th year from start and with 5% annual increase thereafter. Assuming 8% discount rate and 2% inflation each year from the very beginning, when does the project achieve a positive NPV?

Answer 1

Answer: A positive NPV is gotten after 8 years

Explanation:

The net present value is also referred to as the net present worth. The net present value applies to a series of cash flows that occurs at different times.

The present value of cash flow depends on time interval between now and the cash flow and also depends on discount rate. The net present value accounts for time value of money.

The explanation for the question has been attached.

A positive NPV is gotten after 8 years.