Jordan is considering building a nuclear power plant, which will be ready for production in 2030. The country's governing body is also considering a decommissioning liability law for the operator to put aside $1 million every month towards decommissioning cost. If the production life of the plant is 60 years and the operator puts the money at the end of the month in a savings account, earning 7.25% compounded semi-annually, what will be the value of the decommissioning fund after 60 years of production?

Question

Quizplus · Accepted Answer

The total production life of the plant is 60 years, and the operator puts $1 million every month for 60 years. So the total number of payments made by the operator will be 12 x 60 = 720.

Using the formula for the future value of an annuity:

FV = PMT x ((((1 + r)^n) - 1) / r)

Where,
PMT = Payment per month = $1 million
r = annual interest rate / 2, as the interest is compounded semi-annually = 0.0725 / 2 = 0.03625
n = Total number of payments = 720

FV = $1 million x ((((1 + 0.03625)^720) - 1) / 0.03625) = $11.88 billion (approx.)

Therefore, the value of the decommissioning fund after 60 years of production will be $11.88 billion (approx.), which is given in choice (D).

Jordan Is Considering Building a Nuclear Power Plant, Which Will