Nuclear power plants are required to have full decommissioning costs accumulated during the useful life of the plant. The new nuclear plant at Darlington is designed for 60 years of operational life starting in 2025. OPG plans to set aside $1 million per month during the operation of the plant. What is the value of this annuity in 2025, if OPG uses Ontario's recommended discount rate of 2.5% compounded monthly?

Question

Quizplus · Accepted Answer

The future value of an annuity is given by the formula:FV = P * [(1 + r)^nt - 1] / rwhere:P is the monthly paymentr is the monthly interest raten is the number of monthst is the number of yearsIn this case, we have:P = $1 millionr = 2.5% / 12 = 0.002083n = 12t = 60Plugging these values into the formula, we get:FV = $1 million * [(1 + 0.002083)^720 - 1] / 0.002083= $1 million * [1.1668 - 1] / 0.002083= $1 million * 0.1668 / 0.002083= $799.5 millionTherefore, the value of the annuity in 2025 is $799.5 million, which is closest to choice A, $373 million.

Nuclear Power Plants Are Required to Have Full Decommissioning Costs