Answer:
a.
$480,982,023
b.
-$747,691,167
Explanation:
NPV the sum of present values of all the cash inflows and outflows associated with the project.
We need sum up the resent value of each cash flow in a formula.
Net Present value = Initial Investment + PV of yearly cash Flow + Pv of decommissioning cost
Net Present value = ($2,200,000,000) + [ $300,000,000 x ( 1 - ( 1 + r )^-15 / r] + [ $900,000,000 x ( 1 + r )^-15 ]
a.
r = 5%
Net Present value = ($2,200,000,000) + [ $300,000,000 x ( 1 - ( 1 + 5% )^-15 / 5%] + [ $900,000,000 x ( 1 + 5% )^-15 ]
Net Present value = ($2,200,000,000) + $3,113,897,411 + ($432,915,388
)
Net Present value = $480,982,023
b.
r = 18%
Net Present value = ($2,200,000,000) + [ $300,000,000 x ( 1 - ( 1 + 18% )^-15 / 18%] + [ $900,000,000 x ( 1 + 18% )^-15 ]
Net Present value = ($2,200,000,000) + $1,527,473,268 + ($75,164,435 )
Net Present value = ($747,691,167)
