A proposed nuclear power plant will cost $2.7 billion to build and then will produce cash flows of $350 million a year for 15 years. After that period (in year 15), it must be decommissioned at a cost of $950 million. a. What is the NPV of the project if the discount rate is 3%?b. What is the NPV of the project if the discount rate is 16%?

Question
Asked Oct 31, 2019
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A proposed nuclear power plant will cost $2.7 billion to build and then will produce cash flows of $350 million a year for 15 years. After that period (in year 15), it must be decommissioned at a cost of $950 million. 

a. What is the NPV of the project if the discount rate is 3%?

b. What is the NPV of the project if the discount rate is 16%?

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Expert Answer

Step 1

Part A & B:

Calculation of NPV at Discount Rate of 3% and 16%:

The NPV at discount rate of 3% is $868,508,430.34.

The NPV at discount rate of 16% is -$851,121,006.37.

Excel Spreadsheet:

...
А
В
C
D
E
F
G
Н
I
1
NPV at 3% Discount Rate
NPV at 16% Discount Rate
FVIF@ 3% PV of Cash Flows
FVIF@ 16% PV of Cash Flows
2
Year
Cash Flows
Year
Cash Flows
($2,700,000,000)
($2,700,000,000)
$301,724,137.93
$260,107,015.46
$224,230,185.74
3
0
1.0000
($2,700,000,000)
0
($2,700,000,000)
1.0000
4
1
S350,000,000
1.0300
S339,805,825.24
1
S350,000,000
1.1600
$350,000,000
$350,000,000
$329,908,568.20
$350,000,000
5
2
1.0609
2
1.3456
$350,000,000
6
1.0927
$320,299,580.77
S310,970,466.77
1.5609
7
4
$350,000,000
S350,000,000
1.1255
4
S350,000,000
1.8106
$193,301,884.26
$166,639,555.39
8
5
1.1593
$301,913,074.53
$293,119,489.84
5
S350,000,000
2.1003
$350,000,000
$143,654,789.13
6
$350,000,000
1.1941
6
2.4364
10
7
$350,000,000
$350,000,000
1.2299
$284,582,028.97
$276,293,232.01
7
S350,000,000
2.8262
$123,840,335.46
$106,758,909.88
$350,000,000
$350,000,000
$350,000,000
11
8
1.2668
8
3.2784
3.8030
12
9
$350,000,000
1.3048
$268,245,856.32
$92,033,543.00
$79,339,261.21
13
10
S350,000,000
1.3439
$260,432,870.21
10
4.4114
1.3842
$68,395,914.83
$58,961,995.55
$50,829,306.50
$43,818,367.68
14
11
S350,000,000
$252,847,446.81
11
$350,000,000
$350,000,000
5.1173
15
12
$350,000,000
1.4258
S245,482,958.07
12
5.9360
16
13
$350,000,000
1.4685
$238,332,969.00
13
$350,000,000
6.8858
17
14
S350,000,000
1.5126
$231,391,232.04
14
S350,000,000
7.9875
($385,117,168.44)
18
15
($600,000,000)
NPV of the Project
1.5580
15
(S600,000,000)
NPV of the Project
9.2655
($64,756,208.39)
-S851,121,006.37
19
$868,508,430.34
AA
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А В C D E F G Н I 1 NPV at 3% Discount Rate NPV at 16% Discount Rate FVIF@ 3% PV of Cash Flows FVIF@ 16% PV of Cash Flows 2 Year Cash Flows Year Cash Flows ($2,700,000,000) ($2,700,000,000) $301,724,137.93 $260,107,015.46 $224,230,185.74 3 0 1.0000 ($2,700,000,000) 0 ($2,700,000,000) 1.0000 4 1 S350,000,000 1.0300 S339,805,825.24 1 S350,000,000 1.1600 $350,000,000 $350,000,000 $329,908,568.20 $350,000,000 5 2 1.0609 2 1.3456 $350,000,000 6 1.0927 $320,299,580.77 S310,970,466.77 1.5609 7 4 $350,000,000 S350,000,000 1.1255 4 S350,000,000 1.8106 $193,301,884.26 $166,639,555.39 8 5 1.1593 $301,913,074.53 $293,119,489.84 5 S350,000,000 2.1003 $350,000,000 $143,654,789.13 6 $350,000,000 1.1941 6 2.4364 10 7 $350,000,000 $350,000,000 1.2299 $284,582,028.97 $276,293,232.01 7 S350,000,000 2.8262 $123,840,335.46 $106,758,909.88 $350,000,000 $350,000,000 $350,000,000 11 8 1.2668 8 3.2784 3.8030 12 9 $350,000,000 1.3048 $268,245,856.32 $92,033,543.00 $79,339,261.21 13 10 S350,000,000 1.3439 $260,432,870.21 10 4.4114 1.3842 $68,395,914.83 $58,961,995.55 $50,829,306.50 $43,818,367.68 14 11 S350,000,000 $252,847,446.81 11 $350,000,000 $350,000,000 5.1173 15 12 $350,000,000 1.4258 S245,482,958.07 12 5.9360 16 13 $350,000,000 1.4685 $238,332,969.00 13 $350,000,000 6.8858 17 14 S350,000,000 1.5126 $231,391,232.04 14 S350,000,000 7.9875 ($385,117,168.44) 18 15 ($600,000,000) NPV of the Project 1.5580 15 (S600,000,000) NPV of the Project 9.2655 ($64,756,208.39) -S851,121,006.37 19 $868,508,430.34 AA

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