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, when the plant is producing electricity. During the 60 years of production life of the plant, the operator will put $1 million at the end of the month in a savings account, earning 7.25% compounded monthly. At the end of the production life of the plant, there are no more contributions and the money is expected to grow at the rate of 6% compounded quarterly for the next 30 years. What will be the value of the decommissioning fund in 2120?
A) $12.49 billion
B) $74.57 billion
C) $75.23 billion
D) $70.94 billion
E) $60.90 billion

Question

Quizplus · Accepted Answer

First, calculate the future value of the monthly contributions during the production life of the plant, which is 60 years or 720 months. Using the formula for the future value of an annuity: FV = P * [((1 + r)^n - 1) / r], where P = $1 million, r = 7.25%/12 per month, and n = 720 months. This calculates to approximately $2.19 billion.Next, calculate the future value of this amount for the next 30 years without additional contributions but growing at a rate of 6% compounded quarterly. Use the formula for the future value of a single sum: FV = PV * (1 + r)^n, where PV = $2.19 billion, r = 6%/4 per quarter, and n = 30*4 quarters. This calculates to approximately $74.57 billion.

Jordan Is Considering Building a Nuclear Power Plant, Which Will