You are the financial manager of the utility company American Power Inc. and you are considering the construction of a nuclear power plant. The proposed facility costs $2,400 million to build, then it will produce cash flows of $300 million at the end of every year for 12 years, and eventually it is decommissioned at a cost of $850 million at the end of year 12. What is the NPV of the nuclear power plant? Assume an interest rate of 15% per year. Answer in millions of dollars with 2 decimals (for example, if your answer is 1,000,000 enter 1.00). Also, if you answer is negative put a negative sign in your answer.

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A: a) Working note:

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A: r=rf+beta(rm−rf)rf=7%rm=15%beta=1.1=>7%+1.1(15%-7%).=>7%+8.8%=>15.8%

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Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.