Question

A proposed nuclear power plant will cost $3.1 billion to build and then will produce cash flows of $390 million a year for 15 years. after that period (in year 15), it must be decommissioned at a cost of $990 million. what is the npv of the project if the discount rate is 5%?

Answer 1

The student's question involves calculating the NPV of a nuclear power plant, considering initial construction costs, annual cash flows, and decommissioning costs at a given discount rate.

Step-by-step explanation:

The question is asking for the calculation of the Net Present Value (NPV) of a nuclear power plant project with an initial investment with future cash flows and a decommissioning cost. NPV is a financial metric used to evaluate the profitability of an investment, taking into account the time value of money, where future cash flows are discounted back to their present value.

To calculate the NPV, the initial cost to build the plant is subtracted from the sum of the present values of all cash inflows and outflows, using the discount rate provided.

The cash flows from the plant of $390 million per year for 15 years are discounted at a 5% rate, and the decommissioning cost in year 15 of $990 million is also factored into the NPV calculation.