Contemporary Engineering Economics 6th Edition by Chan Park

تمرين 1

Critics have charged that, in carrying out an economic analysis, the commercial nuclear power industry does not consider the cost of decommissioning, or "mothballing," a nuclear power plant and that the analysis is therefore unduly optimistic. As an example, consider the Tennessee Valley Authority's Bellefont twin nuclear generating facility under construction at Scottsboro, in northern Alabama. The initial cost is $1.5 billion and the estimated life is 40 years. The annual operating and maintenance costs are assumed to be 4.6% of the initial cost during the first year and are expected to increase at an annual rate of 0.05% thereafter. Annual revenues are estimated to be three times the annual operating and maintenance costs throughout the fife of the plant.
(a) The criticism that the economic analysis is overoptimistic because it omits "mothballing" costs is not justified, since the addition of a cost of 50% of the initial cost to "mothball" the plant decreases the 8.95% rate of return only to approximately 8.77%.
(b) If the estimated life of the plants is more realistically taken to be 25 years instead of 40 years, then the criticism is justified. By reducing the Ufe to 25 years, the rate of return of approximately 9% without a "mothballing" cost drops to approximately 7.7% when a cost to "mothball" the plant equal to 50% of the initial cost is added to the analysis.
Comment on these statements.