A proposed nuclear power plant will cost $1.4 billion to build and then will produce cash flows of $220 million a year for 15 years. After that period (in year 15), it must be decommissioned at a cost of $820 million. What is project NPV if the discount rate is 5%? What if it is 18%?
A proposed nuclear power plant will cost $1.4 billion to build and then will produce cash flows of $220 million a year for 15 years. After that period (in year 15), it must be decommissioned at a cost of $820 million. What is project NPV if the discount rate is 5%? What if it is 18%?
Related questions
| An auto plant that costs $180 million to build can produce a line of flexfuel cars that will produce cash flows with a present value of $220 million if the line is successful but only $110 million if it is unsuccessful. You believe that the probability of success is only about 40%. You will learn whether the line is successful immediately after building the plant. |
| a-1. | Calculate the expected NPV. (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Enter your answer in millions rounded to 1 decimal place.) |
| Expected NPV | $ million |
| a-2. | Would you build the plant? | ||||
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| Suppose that the plant can be sold for $175 million to another automaker if the auto line is not successful. |
| b-1. | Calculate the expected NPV. (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Enter your answer in millions rounded to 2 decimal places.) |
| Expected NPV | $ million |
| b-2. | Would you build the plant? | ||||
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