Question

A proposed nuclear power plant will cost $2.7 billion to build and then will produce cash flows of $350 million a year for 15 years. After that period (in year 15), it must be decommissioned at a cost of $950 million.
A. What is project NPV if the discount rate is 3%?
B. What if the discount rate is 16%?

Answer 1

Answer:

NPV when I is 3% = $2,088,046,130

NPV when I is 16% = $-646,059,679.8

Explanation:

Net present value is the present value of after tax cash flows from an investment less the amount invested.

NPV can be calculated using a financial calculator

Cash flow in year 0 = $-2.7 billion

Cash flow each year from year 1 to 14 = $350 million

cash flow in year 15 = $950 million + $350 million = $1,300 billion

NPV when I is 3% = $2,088,046,130

NPV when I is 16% = $-646,059,679.8

To find the NPV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.  

3. Press compute