A proposed nuclear power plant will cost $2.8 billion to build and then will produce cash flows of $360 million a year for 15 years. After that period (in year 15), it must be decommissioned at a cost of $960 million.

A proposed nuclear power plant will cost $2.8 billion to build and then will produce cash flows of $360 million a year for 15 years. After that period (in year 15), it must be decommissioned at a cost of $960 million. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers in billions rounded to 3 decimal places.)

a. What is project NPV if the discount rate is 5%?
 
 b. What if the discount rate is 15%?
 
Explanation
Some values below may show as rounded for display purposes, though unrounded numbers should be used for the actual calculations.

NPV = −$2.8 billion + [$360.0 billion × Annuity factor (r, 15 years)] − [$1.0 billion / (1 + r)¹⁵]

r = 5% ⇒
NPV = −$2.8 billion + 3.2749 billion = $0.475 billion
r = 15% ⇒
NPV = −$2.8 billion + 1.9871billion = −$0.813 billion
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