Horizon value question A project involved initial construction costs of $1.75 million. After 15 years, the useful life of that construction will be over and the facility will be demolished, involving sensitive environmental protections and cleanup. You estimate that 25% of the cost of the facility represents items that could be sold for scrap at 30% of their initial construction cost. You estimate the proper demolition cost of such a facility to be $0.9M. a. What is the NPV of the horizon value if the real discount rate is 0.035? b. If the expected annual rate of inflation is 0.02, what is the nominal horizon value in 15 years?

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