A proposed nuclear power plant will cost $1.6 billion to build and then will pro

Question

A proposed nuclear power plant will cost $1.6 billion to build and then will produce cash flows of $240 million a year for 15 years. After that period (in year 15), it must be decommissioned at a cost of $840 million. What is project NPV if the discount rate is 4%? What if it is 18%? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers in billions rounded to 3 decimal places.)

A proposed nuclear power plant will cost $1.6 billion to build and then will produce cash flows of $240 million a year for 15 years. After that period (in year 15), it must be decommissioned at a cost of $840 million. What is project NPV if the discount rate is 4%? What if it is 18%? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers in billions rounded to 3 decimal places.)

Discount Rate NPV                       4%    $  billion     18%    billion

Explanation / Answer

NPV = Annual cash flow x PVIFA(n, R) +Terminal cash flow xPVIF (n, R) – Initial Investment

NPV at 4%

NPV = 240 million x PVIFA(15, 4%) – 840 million x PVIF (15,4%) – 1,600 million

         = 240 million x 11.118387 -840 million x 0.55526 -1600 million

        = 2201.99 -1600 million

        = 601.99 million or 0.602 billion

NPV at 18%

NPV = 240 million x PVIFA(15, 18%) – 840 million x PVIF (15,18%) – 1,600 million

         = 240 million x 5.091578 -840 million x 0.083516 -1600 million

        = 1151.83 -1600 million

        = -448.17 million or -0.448 billion

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.