Question

Problem 1:

a) List the potential costs and benefits that should be considered in evaluating a potential nuclear power plant. What stakeholder viewpoints will need to be considered?

b) If a net present worth analysis for a stream restoration plan indicates that the net present worth (NPW) is greater than zero, does that guarantee that the plan is the best possible (optimal) solution? Why or why not? You may wish to use a graph in your explanation, but do not need to.

Answer 1

Costs such as capital costs which includes the cost of site construction, equipments which are required to be of necessary quality, plant operating costs, external costs which could be severe such as when there is an accident. Benefits while evaluating a nuclear power plant are low greenhouse emissions, high power output and productivity. Stakeholder viewpoints such as low electricity cost, safety regulations, efficient waste management so that there are limited negative externalities, ease of access all year round, thereby increasing end use.

b) Net present value stands for the difference between the present value of cashinflows and outflows. If the net present worth indicates it is greater then zero, it doesn't necessarily mean than the plan is the best possible solution. The NPW greater than zero essentially means that the revenue is greater than the costs, thus the investor makes profit. But this is just an evaluation, it doesn't mean that it is the optimal solution as discount rate might change in future, the size of the cash flow also. The inflation rate might also increase which might discount the future cashflows all the more wherein the real interest rates are not that high.