Post by: leo leo on Jun 7, 2019
Question 1
If Ontario decides to build two new units of nuclear power plants, the overnight cost of construction is $15 billion. The annual net rate of return from the two units is $1 billion every year for the next 60 years, at which time the plants should be decommissioned and have no residual value. Should Ontario decide to build the two units of nuclear power plants if the required rate of return is 7%?Question 2
A local community church is contemplating installment of solar cells on its roof and sell the access electricity to the Ontario grid via a power purchase agreement. The project requires an initial investment of $75 000 with a residual value of $2000 after 10 years. It is estimated to yield annual net returns of $15 000 for 10 years. What is the NPV of the project given a rate of return of 7%?◦ -$31 370
◦ $1017
◦ $32 387
◦ $31 370
◦ -$32 387
Post by: amcvicar on Jun 7, 2019
Answer 1
| PMT = $1 billion; | n = 60; | i = 7% |
= $14.04 billionPVOUT= $15 billion
NPV = $14.04 -$15 = -$0.96 billion
Since NPV is negative, Ontario should not build the two units of nuclear power plants.
Answer 2
$31 370Post by: leo leo on Jun 7, 2019
Post by: amcvicar on Jun 7, 2019