Reference no: EM133125309

Discounting Costs and Benets XL energy is considering a project to set up windmills next to the Stone Arch bridge. Setting up these windmills will cost $550 million upfront, but it will qualify the rm to receive a clean energy subsidy" of an amount $55 million each year. In addition, it will reduce XL energy's reliance on the market for coal and reduce cost of production by $15 million each year. In general the lifespan of windmills is 4 years at the end of which they will have to be dismantled and sold for scrap for 25 percent of their initial cost. The subsidies arrive at the beginning of every year. All estimates of avoided costs are made assuming that they occur at the beginning of the year. The nominal discount rate through the whole period is 9.2 percent and the rate of in ation is 5 percent. Find the net present value of the project.