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Dear John,
I got a question on No.16 of 2019 PM paper.
Volt Co generates and sells electricity. It operates two types of power station: nuclear and wind.
The costs and output of the two types of power station are detailed below:
Nuclear station
A nuclear station can generate 9,000 gigawatts of electricity in each of its 40 years of useful life. Operating costs are $486m per year. Operating costs include a provision for depreciation of $175m per year to recover the $7,000m cost of building the power station.
Each nuclear station has an estimated decommissioning cost of $12,000m at the end of its life. The decommissioning cost relates to the cost of safely disposing of spent nuclear fuel.
Wind station
A wind station can generate 1,750 gigawatts of electricity per year. It has a life-cycle cost of $55,000 per gigawatt and an average operating cost of $40,000 per gigawatt over its 20-year life.
16 What is the life-cycle cost per gigawatt of the nuclear station (to the nearest $’000)?
A $54,000 B $73,000 C $87,000 D $107,000The answer is C. I was wondering why building cost is not included in the lifecycle cost.
Thank you
Please do not type out full past questions because they are copyright of the ACCA and so we are not allowed to post them here. I have all past questions and so you only need to say which exam and which question 🙂
The initial cost has effectively been included because the operating costs include deprecation and the depreciation is spreading the initial cost. To include the depreciation and the initial cost would be including the same amount twice.
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