Calculate Financial Parameters for a Renewable Energy Project
tiger_
wk_4.xlsxSheet1
| Week 3 Team DQ | |||||||
| FIN 565/EM | |||||||
| Problem: | |||||||
| Compute the Net Present Value of the following project. Initial investment is $2.5MM per windmill. 10 windmills to be installed. Each windmill will generate 10000 kW-hr per month, and the power generated is to be sold at a net 10 cents per kW-hr. The project life is estimated at 10 years, with power prices increasing by 3.5 percent per year for each of the years in the project. The cost of capital for the firm buying the windmills is X% (each student should select a different value for X, between 5 and 15 percent), weighted average basis. What is the NPV of the project? Is it a go or no-go? | |||||||
| Investment: | $ 2,500,000.00 | Per Mill | |||||
| Sell Price | $ 0.10 | per kW-hr | |||||
| Power Generation per Windmill: | 10000 | kW-hr/mo | |||||
| No. of Mills: | 10 | ||||||
| Tax Rate: | 35% | ||||||
| Discount Rate: | 10% | ||||||
| Cash Flow Estimate | |||||||
| Year | Revenue per Mill | Total Revenue | MACRS Factor | Depreciation Tax Shield | Total Cash Flow | PVIF(n,k) | PV of Cash Flow |
| 1 | $ 12,000.00 | $ 120,000.00 | 0.10 | $ 875,000.00 | $ 995,000.00 | 0.9090909091 | $ 904,545.45 |
| 2 | $ 12,360.00 | $ 123,600.00 | 0.18 | $ 1,575,000.00 | $ 1,698,600.00 | 0.826446281 | $ 1,403,801.65 |
| 3 | $ 12,730.80 | $ 127,308.00 | 0.14 | $ 1,225,000.00 | $ 1,352,308.00 | 0.7513148009 | $ 1,016,009.02 |
| 4 | $ 13,112.72 | $ 131,127.24 | 0.12 | $ 1,050,000.00 | $ 1,181,127.24 | 0.6830134554 | $ 806,725.80 |
| 5 | $ 13,506.11 | $ 135,061.06 | 0.09 | $ 787,500.00 | $ 922,561.06 | 0.6209213231 | $ 572,837.83 |
| 6 | $ 13,911.29 | $ 139,112.89 | 0.07 | $ 612,500.00 | $ 751,612.89 | 0.5644739301 | $ 424,265.88 |
| 7 | $ 14,328.63 | $ 143,286.28 | 0.07 | $ 612,500.00 | $ 755,786.28 | 0.5131581182 | $ 387,837.86 |
| 8 | $ 14,758.49 | $ 147,584.86 | 0.07 | $ 612,500.00 | $ 760,084.86 | 0.4665073802 | $ 354,585.20 |
| 9 | $ 15,201.24 | $ 152,012.41 | 0.07 | $ 612,500.00 | $ 764,512.41 | 0.4240976184 | $ 324,227.89 |
| 10 | $ 15,657.28 | $ 156,572.78 | 0.06 | $ 525,000.00 | $ 681,572.78 | 0.3855432894 | $ 262,775.81 |
| Cash Flow from Operations: | $ 6,457,612.40 | ||||||
| Initial Investment | $ 25,000,000.00 | ||||||
| NPV | $ (18,542,387.60) | ||||||
| Selection | No-Go |
