Suppose a project generates revenues averaging $750,000 per year perpetually. Variable costs are always proportional...
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Suppose a project generates revenues averaging $750,000 per year perpetually. Variable costs are always proportional to revenues, equal to 30% of revenue. There are no other operating costs. The cost of capital is 13%. Your firms long-term borrowing rate is 7%. A company proposes a fixed-price contract to cover costs at $200,000 per year for 10 years. Find the PV of the project with and without the fixed cost contract (with contract ; without contract).
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($3,679,060 ; $3,854,650)
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($3,854,650 ; $4,038,462)
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($3,538,589 ; $3,679,060)
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($4,038,462 ; $5,259,366)
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($5,259,366; $4,230,769)
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