A proposed nuclear power plant will cost $2.06 billion to build and then will pr

Question

A proposed nuclear power plant will cost $2.06 billion to build and then will produce cash flows of $560 million a year for 20 years. After that period (in year 20), it must be decommissioned at a cost of $600 million. (Round your answers to 3 decimal places.

A proposed nuclear power plant will cost $2.06 billion to build and then will produce cash flows of $560 million a year for 20 years. After that period (in year 20), it must be decommissioned at a cost of $600 million. (Round your answers to 3 decimal places.

What is project NPV if the discount rate is 7.15 percent?      NPV     $ billion                       What is project NPV if the discount rate is 17.15 percent?

Explanation / Answer

NPV = - Investment + PV of cashflows - PV of decommission cost

PV = Fv*(1+r)-n

PV = PMT*(1-(1+r)-n) / r

1)

At 7.15%

NPV = -2060 + 560*(1-(1+7.15%)-20) / 7.15% - 600 *(1+7.15%)-20

= 3507.67= 3.50767 billion $

At 17.15%

NPV = -2060 + 560*(1-(1+17.15%)-20) / 17.15% - 600 *(1+17.15%)-20

   = 988.98 =0.98898 billion $

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