A project involved initial construction costs of $1.75 million. After 15 years, the useful life of that construction will be over and the facility will be demolished, involving sensitive environmental protections and cleanup. You estimate that 25% of the cost of the facility represents items that could be sold for scrap at 30% of their initial construction cost. You estimate the proper demolition cost of such a facility to be $0.9M.

a. What is the NPV of the horizon value?

b. If the expected annual rate of inflation is 0.02, what is the nominal horizon value in 15 years?