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Its BPP Kit question no 84 part a (iii) sensitivity of the projects NPV to the decommissioning cost.
in solution the model answer writes
decommissioning cost must increase by 122/0.157=777.8m (in Janvary 20×2 prices) before NPV becomes zero.
Sir where the denominator in above equation comes from I can’t figure it out, Could you help please sirBecause the nominal cost of capital is 10% and the applicable inflation is 4%. The real discount rate = (1.1/1.04) – 1 = 5.7692%
The 33 year discount factor at 5.7692% is 0.1571
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