Question

A proposed nuclear power plant will cost $1.6 billion to build and then will produce cash flows of $240 million a year for 15 years. After that period (in year 15), it must be decommissioned at a cost of $840 million. What is project NPV if the discount rate is 4%? What if it is 18%?

Discount Rate NPV
4% $billion
18% billion

Answer 1

NPV when discount rate is 4% = $2,200.39

NPV when discount rate is 18% = $1,150.23

Step-by-step explanation:

The net present value is the present value of after tax cash flows from an investment les the amount invested.

NPV can be calculated using a financial calculator:

Cash flow in year 0 = $-1.6 billion

Cash flow each year from year one to fourteen = $240 million

Cash flow in year 15 = $240 million - $840 million = $-600 million

NPV when discount rate is 4% = $2,200.39

NPV when discount rate is 18% = $1,150.23

To find the NPV using a financial calacutor:

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.

3. Press compute

I hope my answer helps you