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Hi Sir
The SeaIsland Nucleur power question part one:
The present value for 2015 to 2044(operating surplus)will be 10.601
and present value for 2044(decommissioning) is 0.501.
How did they come up with these two values?
Thanx in advance!I am away from hope until late tonight and do not have access to the question.
Please ask again tomorrow and then I will have the question and answer you 🙂
I don’t know which answer you are looking at, but the examiners answer has the PV of the operating surplus as 1060.1M and the PV of the decommissioning costs as 94.3.
For the operating flows, they are occur for 30 years so it is a 30 year annuity but starting 3 years late (the first flow being at time 4 rather than at time 1). So you calculate the discount factor for 30 years using the formula given in the question, and then discount for the further 3 years at 10%.
For the decommissioning costs, the occur in 33 years time and so you inflate for 33 years at 4% per year, and then discount for 33 years at 10%.
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