Consider the following projectregarding the building of a large bridge between two major cities.The bridge will involve a ‘toll’ or monetary charge, where users ofthe bridge will pay an amount of money each time that they crossover the bridge.

The current date is 1 January 2019.The bridge is expected to take 2 years to build, and the first paidcrossing of the bridge will occur in exactly 2 years from now.

The costs of the project are asfollows:

Building costs

1 January 2019: $5 million

1 July 2019: $15 million

1 January 2020: $17.5 million

1 July 2020: $8 million

1 January 2021: $100,000

Maintenance and ongoing costs

Painting and repairs of $125,000every quarter (ongoing), with the first cost incurred on 31 March2021, and increasing by 1% every quarter thereafter

Road resealing: This occurs every 18months with the first resealing occurring on 30 June 2022. The costis $1.1m each time, increasing by 10% every 18 months.

Ongoing administration and staffcosts: Assumed to be incurred monthly, of $75,000 per month withthe first cost incurred on 1 February 2019, increasing by 2.5%(effective) every 12 months.

Income

The income from the monetary chargesthat apply to each bridge crossing is given by the following:

Cost per crossing: $2.80 per crossingover the bridge. This cost will apply throughout 2021. Every yearthereafter, the cost increase by 5 cents per crossing.

Usage of the bridge

In 2021, it is anticipated that therewill be 2 million crossings over the bridge over the year. Thisnumber of crossings is expected to increase by 7% per year, at theend of each year. Use of the bridge is not constant each month, butoccurs in relation to the following breakdown per month:

Month	% of total annual bridge crossingsthat occur in this month
January	5%
February	12%
March	12%
April	9%
May	8%
June	7%
July	3%
August	8%
September	10%
October	12%
November	10%
December	4%

It can also be assumed that theincome for each month, is earned on average half way through eachmonth.

1. Assuming a time horizon of 20 years for this project, determinethe Internal Rate of Return.
2. Assuming a time horizon of 20 years for this project, determinethe PV of costs at a risk discount rate of 10% per annum(effective)
3. Assuming a time horizon of 20 years for this project, determinethe PV of income at a risk discount rate of 10% per annum(effective)
4. Hence, using your answers to (b) and (c), determine the NPV ofthis project at a risk discount rate of 10% per annum(effective)