A proposed nuclear power plant will cost $2.5 billion to build and then will pro
ID: 2731451 • Letter: A
Question
A proposed nuclear power plant will cost $2.5 billion to build and then will produce cash flows of $330 million a year for 15 years. After that period (in year 15), it must be decommissioned at a cost of $930 million.
What is project NPV if the discount rates are 5% and 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 5% $ billion 18% billionExplanation / Answer
Particulars Year Cash Flows PVF @ 5% PVF @ 18% PV @ 5% PV @ 18% Cash Outflow 0 -2500 1 1 -2500 -2500 Cash Inflow 1 330 0.95 0.85 314.29 279.66 Cash Inflow 2 330 0.91 0.72 299.32 237.00 Cash Inflow 3 330 0.86 0.61 285.07 200.85 Cash Inflow 4 330 0.82 0.52 271.49 170.21 Cash Inflow 5 330 0.78 0.44 258.56 144.25 Cash Inflow 6 330 0.75 0.37 246.25 122.24 Cash Inflow 7 330 0.71 0.31 234.52 103.60 Cash Inflow 8 330 0.68 0.27 223.36 87.79 Cash Inflow 9 330 0.64 0.23 212.72 74.40 Cash Inflow 10 330 0.61 0.19 202.59 63.05 Cash Inflow 11 330 0.58 0.16 192.94 53.43 Cash Inflow 12 330 0.56 0.14 183.76 45.28 Cash Inflow 13 330 0.53 0.12 175.01 38.37 Cash Inflow 14 330 0.51 0.10 166.67 32.52 Cash Inflow 15 330 0.48 0.08 158.74 27.56 Cash Outflow 15 -930 0.48 0.08 (447.35) (77.67) Net Present Value 477.94 (897.45)