1. Develop a pro forma set of income and cash flow statements for a wind energy
ID: 2334758 • Letter: 1
Question
1. Develop a pro forma set of income and cash flow statements for a wind energy plant with the following parameters, and calculate the plant’s NPV, IRR and LCOE:
- Overnight capital costs are $1.2 million, all incurred in Year 0. There is no land acquisition cost assumed here.
- The plant has a salvage value of $200,000 at the end of the plant’s life
- Annual revenues from spot market sales are $400,000.
- Annual operating costs are $30,000.
- The plant qualifies for the same 3-Year MACRS schedule that we used in class.
- The plant faces a 34% tax rate
- There are no accounts payable or receivable, but the plant is assumed to have a cash net working capital requirement of $300,000, beginning in Year 0. This working capital can be liquidated at the end of the final year of operation.
- The lifetime of the plant is 5 years
- The discount rate is 20%
- The plant qualifies for a production subsidy of $200,000 per year for all operating years. A hint here is to model this production subsidy as a revenue source.
- The plant produces 10,000 Megawatt-Hours (MWh) of electricity in each year, Years 1 through 5. (You'll need this to calculate LCOE.)
Explanation / Answer
Solution:-
=$1,200,000 * 33.33%
= $399,960
= (1,200,000 + 3,00,000)
= $1,500,000
= $1,200,000 * 44.45%
= $533,400
= 1,200,000 * 14.81%
= $177,720
= 1,200,000 * 7.41%
= $88,920
= [$6,00,000 - ($30,000 + $399,960 )]
= $170,040
= (170,040 * 34%)
= $57,813.6
=[ 6,00,000 - (30,000 + 533,400 )]
= $36,600
=( 36,600 * 34%)
= $12,444
=[ 6,00,000 - ( 30,000 + 177,720 )]
= $392,280
= (392,280 * 34%)
= $133,375.2
=[ 6,00,000 - (30,000 + 88,920 )]
= $481,080
= (481,080 * 34%)
= $163,567.2
=[ 6,00,000 - ( 30,000 + 0 )]
= $570,000
= 570,000 * 34%
= $193,800.
Present value of cash inflow = profit after tax before depreciation / (1 + r)^n
r = 20%
= 512186.4 / (1+ 20%) ^ 1
= 512186.4 / 1.2
= $4,26,822
= 5,57,556 / (1 + 20% )^2
= 557,556 / 1.44
= $3877191.66
= 43,6624.8 / (1+ 20%) ^3
= 43,6624.8 / 1.728
= $252676.3889
= 4,06,432.8 / (1+20%)^4
= 4,06,432.8 / 2.0736
= $196003.4722
= 808,200 / (1+20%)^5
= 808,200 / 2.48832
= $3214797.4537
= 300,000 + 132000 + 376200
= 808,200
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Cost of plants $1,200,000 Year Cost in machine MACRS rate Annual depreciation Investment in additional working capital $3,00,000 1. $1,200,000 33.33%=$1,200,000 * 33.33%
= $399,960
Total cash outflow= (1,200,000 + 3,00,000)
= $1,500,000
2. $1,200,000 44.45%= $1,200,000 * 44.45%
= $533,400
3. $1,200,000 14.81%= 1,200,000 * 14.81%
= $177,720
4. $1,200,000 7.41%= 1,200,000 * 7.41%
= $88,920
5. = Total depreciation accumulative Net proceeds from sale of plant = 200,000 * (1 - 34) Year Total = sales revenue + subsidy Less expenses Less depreciation Profit after depreciation less tax 34% Add depreciation Profit after tax before depreciation 1. $6,00,000 $30,000. $399,960= [$6,00,000 - ($30,000 + $399,960 )]
= $170,040
= (170,040 * 34%)
= $57,813.6
$399,960 2. $6,00,000 $30,000. $533,400=[ 6,00,000 - (30,000 + 533,400 )]
= $36,600
=( 36,600 * 34%)
= $12,444
$533,400 3. $6,00,000 $30,000. $177,720=[ 6,00,000 - ( 30,000 + 177,720 )]
= $392,280
= (392,280 * 34%)
= $133,375.2
$177,720 4. $6,00,000 $30,000. $88,920=[ 6,00,000 - (30,000 + 88,920 )]
= $481,080
= (481,080 * 34%)
= $163,567.2
$88,920 5. $6,00,000 $30,000. 0=[ 6,00,000 - ( 30,000 + 0 )]
= $570,000
= 570,000 * 34%
= $193,800.
0 Year Profit after tax before depreciationPresent value of cash inflow = profit after tax before depreciation / (1 + r)^n
r = 20%
0. $1,500,000 1. $512186.4= 512186.4 / (1+ 20%) ^ 1
= 512186.4 / 1.2
= $4,26,822
2. $5,57,556= 5,57,556 / (1 + 20% )^2
= 557,556 / 1.44
= $3877191.66
3. $43,6624.8= 43,6624.8 / (1+ 20%) ^3
= 43,6624.8 / 1.728
= $252676.3889
4. $4,06,432.8= 4,06,432.8 / (1+20%)^4
= 4,06,432.8 / 2.0736
= $196003.4722
5. $808,200= 808,200 / (1+20%)^5
= 808,200 / 2.48832
= $3214797.4537
Netb present value Sum of present values of cash flow = 87490.7798 NPV is positive so plant should be implemented Profit after tax before depreciation + net proceed from scrap value + recovery of working capital= 300,000 + 132000 + 376200
= 808,200
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