Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A plant that supplies 1 unit of electricity per year, costs $1 billion to build, lasts 25 years, and has an annual operating cost of

A plant that supplies 1 unit of electricity per year, costs $1 billion to build, lasts 25 years, and has an annual operating cost of $0.2 billion; it costs $0.1 billion to decommission the plant at the end of its lifetime (25 years). (Assume that the construction costs and the operating costs are paid at the beginning of the period, and that the decommissioning cost is paid at the end of the life of the plant.) The annual discount rate is r, with discount factor = 1/1+r . Write the formula for the present value of the cost of providing 1 unit of electricity for 100 years, including the decommissioning costs. (Hint: First find the present value of providing one unit of electricity for 25 years. Denote this magnitude as Z. Then find the present value of incurring this cost, Z, 4 times: in periods 0, 25, 50, and 75.)

Step by Step Solution

3.46 Rating (166 Votes )

There are 3 Steps involved in it

Step: 1

a To calculate the price of the fiveyear fixed interest security 1 Calculate the present value of annual coupons Annual coupon payment C 8 of face value Yield to maturity for year 1 y1 9 Using the formula for the present value of an ... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Engineering Economy

Authors: Leland T. Blank, Anthony Tarquin

8th edition

73523439, 73523437, 978-0073523439

More Books

Students also viewed these Finance questions

Question

what two benefits can you get from using broad match,

Answered: 1 week ago