Question

What is the present value of the following planned cash flow for a 25 year power plant project? Assume that the annual cost of money is 4.2%. Draw the cash flow diagram and present your solution. Initial Investment (construction costs) - $60,000,000 Annual operating costs - $750,000 Annual maintenance costs - $95,000 Projected decommissioning expenses – $13,000,000 Projected income from scrap - $350,000

Answer 1

Cash flow Diagram

Initial Investment	$ 60,000,000
Annual operating costs	$        750,000
Annual Maintanance costs	$          95,000
Total Annual costs	$        845,000
PV of these annual costs	$        845,000	* PVAF@ 4.2%,25 years
=	$        845,000	*15.297011841419
=	$ 12,925,975
Decommissioning expenses in 25th year	$ 13,000,000
Projected income from scrap	$        350,000
Net expenses in year 25	$ 12,650,000
PV of these expenses	$ 12,650,000	* PVF@ 4.2%,25 years
	$ 12,650,000	*0.357525502660395
	$    4,522,698
Present value of total cash flow
Initial investment	$ 60,000,000
Annual Cash outflow	$ 12,925,975
Terminal cash outflow	$    4,522,698
Present value of total cash out flow	$ 77,448,673