1. **State the problem:** Calculate the net present value (NPV) of Option 1 for upgrading the nuclear power station. 2. **Given data:** - Quarterly payment (cost) = $11,100 - Number of years = 15 - Payments per year (C/Y) = 4 - Interest rate per year (I/Y) = 3.15% compounded quarterly - Residual value (sale of equipment) at end of 15 years = $124,000 3. **Calculate the number of periods (N):** $$N = 15 \times 4 = 60$$ 4. **Calculate the quarterly interest rate (i):** $$i = \frac{3.15}{4} = 0.7875\% = 0.007875$$ 5. **Calculate the present value of the outflows (payments):** The payments are an annuity of $11,100 every quarter for 60 quarters. Use the present value of an annuity formula: $$PV_{out} = PMT \times \frac{1 - (1 + i)^{-N}}{i}$$ Substitute values: $$PV_{out} = 11100 \times \frac{1 - (1 + 0.007875)^{-60}}{0.007875}$$ Calculate: $$1 + 0.007875 = 1.007875$$ $$1.007875^{-60} = \frac{1}{1.007875^{60}} \approx 0.6181$$ So, $$PV_{out} = 11100 \times \frac{1 - 0.6181}{0.007875} = 11100 \times \frac{0.3819}{0.007875} \approx 11100 \times 48.47 = 537,417$$ 6. **Calculate the present value of the inflow (residual value):** The residual value is a single payment at the end of 15 years (60 quarters). Use the present value of a single sum formula: $$PV_{in} = FV \times (1 + i)^{-N}$$ Substitute values: $$PV_{in} = 124000 \times 1.007875^{-60} = 124000 \times 0.6181 = 76,639$$ 7. **Calculate the net present value (NPV):** $$NPV = PV_{in} - PV_{out} = 76639 - 537417 = -460,778$$ 8. **Round the NPV to the nearest dollar:** $$NPV = -460,778$$ **Final answer:** NPV (Option 1) = $-460778