Question

A proposed nuclear power plant will cost $2.9 billion to build and then will produce cash flows of $370 million a year for 15 years. After that period (in year 15), it must be decommissioned at a cost of $970 million. What is project NPV if the discount rate is 4%? What if it is 16%? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers in billions rounded to 3 decimal places.)

Answer 1

Answer:

Explanation:

This question can be solved using a financial calculator. Use the cashflow button (CF) on Texas Instruments BA II Plus with the following inputs;

CF0 = -2,900,000

C01 = 370,000,000

F0,1 = 14 (Since the recurring equal cashflows occurs for 14 years; use frequency function and input 14)

For year 15, find the net cashflows since there's a cost of $970 million;

C02 = $370 - $970 = -$600 million

I = 4%

then compute net present value; CPT NPV = $3,572,296,782 or $3.572 Billion

If 16%, everything remains the same except for I= 16%

NPV = $1,955,329,577 or $1.955 Billion