Question

A proposed nuclear power plant will cost $2.2 billion to build and then will produce cash flows of $300 million a year for 15 years. After that period (in year 15), it must be decommissioned at a cost of $900 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 the NPV of the project if the discount rate is 5%?
b. What is the NPV of the project if the discount rate is 18%?

Answer 1

$0.481 billion

$-0.748 billion

Step-by-step explanation:

Net present value is the present value of after-tax cash flows from an investment less the amount invested.

NPV can be calculated using a financial calculator

Cash flow in year 0 = $-2.2 billion

Cash flow each year from year 1 to 14 = 0.3 billion

Cash flow in year 15 = 0.3 - 0.9 = -0.6 billion

NPV of the project if the discount rate is 5%? = $0.481 billion

b. What is the NPV of the project if the discount rate is 18% = $-0.748 billion

To find the NPV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.