A device captures waste heat from a nuclear reactor and allows it to be converted and sold as energy to nearby plants. The nuclear company has a remaining 2 years before it will be shut down. The initial cost of the device is £500,000. When installed in year 0 it produces £100,000 net revenue (revenue net of operating cost) one year later and £500,000 two years later. The nuclear company uses a high discount rate of 20% because it has other productive uses for its cash. What is the NPV for installing this device? HINT: a discount rate of 20% means that the discount factor to multiply year 1 cash flow by is 1/(1+0.2)=1/1.2.
A device captures waste heat from a nuclear reactor and allows it to be converted and sold as energy to nearby plants. The nuclear company has a remaining 2 years before it will be shut down. The initial cost of the device is £500,000. When installed in year 0 it produces £100,000 net revenue (revenue net of operating cost) one year later and £500,000 two years later. The nuclear company uses a high discount rate of 20% because it has other productive uses for its cash. What is the NPV for installing this device? HINT: a discount rate of 20% means that the discount factor to multiply year 1 cash flow by is 1/(1+0.2)=1/1.2.
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
Problem 1CE
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Transcribed Image Text:A device captures waste heat from a nuclear reactor and allows it to be converted and sold as
energy to nearby plants. The nuclear company has a remaining 2 years before it will be shut down.
The initial cost of the device is £500,000. When installed in year 0 it produces £100,000 net revenue
(revenue net of operating cost) one year later and £500,000 two years later. The nuclear company
uses a high discount rate of 20% because it has other productive uses for its cash. What is the NPV
for installing this device?
HINT: a discount rate of 20% means that the discount factor to multiply year 1 cash flow by is
1/(1+0.2)=1/1.2.
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