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A major city in the west of Canada is planning to build a new power station to accomodate the increasing demand of the city currently being served by two electric power stations. Construction will start in 2020 and is going to take five years at a cost of $75 million per year. After construction is completed, the cost of operation, maintenance and repairs is expected to be $5 million for the first year, and to increase by 1% per year thereafter. The salvage/scrap value of the power satation at the end of year 2054 is estimated to be $10 million. Consider the present to be the end of 2017/ beginning of 2018 and the interest rate to be 6%.

a) Draw a cash flow diagram for this project (from present till 2054)

b) What is the Present Worth of this project?

c) What is the Future Worth of this project?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92406038

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