a solar sea power plant (SSPP) is being considered in a North American location
ID: 1094356 • Letter: A
Question
a solar sea power plant (SSPP) is being considered in a North American location known for its high temperature ocean surface and its much lower ocean temperature 100 meters below the surface. Power can be produced based on this temperature differential. with high costs of fossil fuels, this particular SSPP may be economically attractive to investors. for an initial investment of $100 million, annual net revenues are estimated to be $15 million in year 1-5 and $20 million in years 6-20. assume no residual market value for the SSPP.(5.8)
a.) what is the simple payback period for the SSPP?
b.) what is the discounted payback period when the MARR is 6% per year?
c.) would you recommend investing in this project?
Explanation / Answer
1) Simple Payback Period can be found when 5*15,000,000 + 20,000,000 + 5,000,000 = 100,000,000
for this (5+1+1/4) years = 6 years 3 months
2) Discounted payback period = 15,000,000[ (1/1.06) + (1/1.062) + (1/1.063) + (1/1.064) + (1/1.065)] + 20,000,000[(1/1.066) + (1/1.067) + (1/1.068)]
= $ 63,185,456.78 + $39,948,600.51 = 103,134,057.3
thus 8 years (or 7 years 11 months to be precise)
3) Yes I would recommend investing in the project because after 8 years, the project has positive cash flows of $ 20,000,000 till year 20, i.e. for next 12 years which is good.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.