Question

In: Finance

A proposed nuclear power plant will cost $1.9 billion to build and then will produce cash...

A proposed nuclear power plant will cost $1.9 billion to build and then will produce cash flows of $270 million a year for 15 years. After that period (in year 15), it must be decommissioned at a cost of $870 million. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers in billions rounded to 3 decimal places.)

a. What is project NPV if the discount rate is 4%?

b. What if the discount rate is 18%?

Solutions

Expert Solution

a. NPV at 4% discount rate 0.619 billion
Working:
# 1 Present value of annuity of 1 = (1-(1+i)^-n)/i Where,
= (1-(1+0.04)^-15)/0.04 i 4%
= 11.11839 n 15
# 2 Present value of 1 = (1+i)^-n
= (1+0.04)^-15
= 0.555265
# 3 Present value of annual cash flows = 0.2700 billion * 11.11839 = 3.001965
Less:
Present value of cash outflow:
Present value of initial cost 1.900
Present value of cost in 15 years 0.8700 billion * 0.555265 = 0.4831 2.383
NPV 0.619
b. NPV at 18% discount rate -0.598 billion
Working:
# 1 Present value of annuity of 1 = (1-(1+i)^-n)/i Where,
= (1-(1+0.18)^-15)/0.18 i 18%
= 5.091578 n 15
# 2 Present value of 1 = (1+i)^-n
= (1+0.18)^-15
= 0.083516
# 3 Present value of annual cash flows = 0.2700 billion * 5.091578 = 1.374726
Less:
Present value of cash outflow:
Present value of initial cost 1.900
Present value of cost in 15 years 0.8700 billion * 0.083516 = 0.0727 1.973
NPV -0.598

Related Solutions

A proposed nuclear power plant will cost $1.7 billion to build and then will produce cash...
A proposed nuclear power plant will cost $1.7 billion to build and then will produce cash flows of $250 million a year for 15 years. After that period (in year 15), it must be decommissioned at a cost of $850 million. What is project NPV if the discount rate is 5%? What if it is 18%? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers in billions rounded to 3 decimal places.)...
A proposed nuclear power plant will cost $2.9 billion to build and then will produce cash...
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. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers in billions rounded to 3 decimal places.) a. What is project NPV if the discount rate is 4%? b. What if the...
Governor John has decided that, rather than build a new nuclear power plant to service power...
Governor John has decided that, rather than build a new nuclear power plant to service power needs, the state should save an equivalent amount of energy. As one component of an efficiency plan, he has turned to you, his top aide, to design a policy to encourage adoption of compact fluorescent (CF) lightbulbs. Although CFs save a tremendous amount of money (and energy) over their lifetime, they are quite expensive initially ($20 or so per bulb in 1993). In addition,...
A power plant that supplies a community with electricity costs $1 billion to build, lasts 25 years, and has an annual operating cost of $0.2 billion
A power plant that supplies a community with electricity costs $1 billion to build, lasts 25 years, and has an annual operating cost of $0.2 billion; it costs $0.1 billion to decommission the plant at the end of its lifetime (25 years). (Assume that the construction costs and the operating costs are paid at the beginning of the period, and that the decommissioning cost is paid at the end of the life of the plant.) The annual discount rate is...
Label the components of a nuclear power plant
 Label the components of a nuclear power plant A 462.5 ng sample of an unknown radioactive substance was placed in storage and its mass measured periodically. After 47 days the amount of radioactive substance had decreased to 57.81 ng. How many half-lives of the unknown radioactive substance have occurred? Sodium-24, which is used to locate blood clots in the human circulatory system, has a half-life of 15.0 h. A sample of sodium-24 with an inital mass of 24.5 g was stored for...
Suppose that an electricity provider would build a power plant at the cost of $50 million....
Suppose that an electricity provider would build a power plant at the cost of $50 million. Once the plant is built, it would cost the plant $0.07 per kilowatt hour of electricity that it produces. Over its lifetime, the plant is expected to generate 100 million kilowatt hours. Suppose that the regulators believe that the investors who put up capital to build the plant should be able to recoup its investment plus a 300% return throughout the life of the...
A nuclear power plant is planned to be constructed near Sydney. The plant is required to...
A nuclear power plant is planned to be constructed near Sydney. The plant is required to have an installed capacity of 1200 MW and will be operated for 7500 hours per year. Consider providing 1200 MW of energy by two solar power plants; one in Sydney and the other in Canberra. It is required that a fixed solar module be mounted. Determine the following parameters if the overall efficiency of the module is given as 15%: a) The peak power...
A nuclear power plant has an overall efficiency of 31% and a power output of 800MW....
A nuclear power plant has an overall efficiency of 31% and a power output of 800MW. For one year operating at full capacity, calculate a) the number of joules produced; b) the number of fission events that were required to produce those joules; c) the mass of uranium oxide (UO2) that has been used in fission; and d) the market cost of that uranium oxide if it was all high quality.
Nobody wants a nuclear power plant in their neighborhood. Unfortunately, the governor must locate a nuclear...
Nobody wants a nuclear power plant in their neighborhood. Unfortunately, the governor must locate a nuclear power plant somewhere inside a 25 square mile area containing four cities. The governor, being primarily concerned with reelection, desires to locate the plant in the location which will cause the least amount of unhappiness among the constituents. In this lab, you will write a program to assist the governor in this difficult decision. METHOD: ^^^^^^^ Assume each city is located in an integer-pair...
Consolidated Power, a large electric power utility, has just built a modern nuclear power plant. This...
Consolidated Power, a large electric power utility, has just built a modern nuclear power plant. This plant discharges waste water that is allowed to flow into the Atlantic Ocean. The Environmental Protection Agency (EPA) has ordered that the waste water may not be excessively warm so that thermal pollution of the marine environment near the plant can be avoided. Because of this order, the waste water is allowed to cool in specially constructed ponds and is then released into the...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT