P5-38 Value of a mixed stream Cook Energy Ltd. plans to build a new low-cost nuclear...

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P5-38 Value of a mixed stream Cook Energy Ltd. plans to build a new low-cost nuclear power plant in France. The construction will cost €30 million right now, but cash flows of €12 million will start arriving at the end of years 1 to 8. The plant will need to be decommissioned at the end of year 5 and will cost €45 million for land restora- tion, to be paid at the end of year 9. a. What is the total undiscounted cash flow associated with this project over its nine-year life? Given this answer, do you think Cook should accept this project? Why? b. Assuming an interest rate of 8%, calculate the net present value of the project. What if the interest rate is 15%? Comment on what you find. P5-38 Value of a mixed stream Cook Energy Ltd. plans to build a new low-cost nuclear power plant in France. The construction will cost €30 million right now, but cash flows of €12 million will start arriving at the end of years 1 to 8. The plant will need to be decommissioned at the end of year 5 and will cost €45 million for land restora- tion, to be paid at the end of year 9. a. What is the total undiscounted cash flow associated with this project over its nine-year life? Given this answer, do you think Cook should accept this project? Why? b. Assuming an interest rate of 8%, calculate the net present value of the project. What if the interest rate is 15%? Comment on what you find.

Answer rating: 100% (QA)

a To calculate the total undiscounted cash flow associated with the project over its nineyear life w... View the full answer