UniStar Nuclear Inc., is a company that generates nuclear energy and it is constructing a new...

 

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UniStar Nuclear Inc., is a company that generates nuclear energy and it is constructing a new nuclear power plant in Ontario. The government has determined that it is a strategic project for the growth of the region and for that reason there are no taxes charged to this project. UniStar Nuclear Energy is expected to generate $800 million in revenues and $300 million in expenses during the 4 years that is expected to last the project. The uranium inventories have increased in $100 million at the start of the project but just half of this value can be collected at the end of the fourth year. The initial investment is $1,000 million and the salvage value at the end of year four will be just 20% of the initial investment in the power plant. If the cost of capital is 5%. Assume that the power plant will depreciate during the 4 years, but there are not tax shields generated. a) What is the value of the cash flow in year 4? (terminal cash flow) b) What is the NPV of the project? UniStar Nuclear Inc., is a company that generates nuclear energy and it is constructing a new nuclear power plant in Ontario. The government has determined that it is a strategic project for the growth of the region and for that reason there are no taxes charged to this project. UniStar Nuclear Energy is expected to generate $800 million in revenues and $300 million in expenses during the 4 years that is expected to last the project. The uranium inventories have increased in $100 million at the start of the project but just half of this value can be collected at the end of the fourth year. The initial investment is $1,000 million and the salvage value at the end of year four will be just 20% of the initial investment in the power plant. If the cost of capital is 5%. Assume that the power plant will depreciate during the 4 years, but there are not tax shields generated. a) What is the value of the cash flow in year 4? (terminal cash flow) b) What is the NPV of the project?

Answer rating: 100% (QA)

a To calculate the terminal cash flow in year 4 we need to consider the salvage value of the power p... View the full answer