You run a construction firm. You have just won a contract to construct a government office building. Constructing it will take one year and require an investment of $10 million today and $5 million in one year. The government will pay you $20 million upon the building’s completion. Suppose the cash flows and their times of payment are certain, and the risk-free interest rate is 10%.
What is the NPV of this opportunity?
How can your firm turn this NPV into cash today?