You are building a pipeline which will generate its first annual cash flow of $2m exactly 5 years from today. As it ages, the volume it transports, and hence the cash flows it creates, will decline by 3% per year. Exactly 27 years from today, this pipeline will be scrapped, and the Environmental Protection Agency will require you to spend $50m then to dismantle it. The pipeline's OCC is 9%. What's the lowest price that you would consider selling it for?

Answer rating: 100% (QA)

Answer Year Cash flow Dismantle cost Net cash flow Disc rate 9 Present value n1 cash flow1003 A B C ... View the full answer