Date: Ju Version: 1 GEORG Business (12 marks) Kastvind Ventures I received a fun

Question

Date: Ju Version: 1 GEORG Business (12 marks) Kastvind Ventures I received a funding to develop, install, and manage windmills. These windmills will be used is a well-established company that has generate power which will sell to provincial and local electricity providers. The current market price for green energy is SO.07 per kilowatt hour. intends to install the windmills in the median between the west-bound and east- bound lanes of the Trans-Canada Highway. This land is under-utilized but has the advantage not causing disturbance to neighbours since the highway itself is noisy. To obtain the to use this land, Kastvind will pay an up-front investment of $10,000,000 to make sure s innovative designed windmill will be able to generate an average of 1,000,000 electricity per year. The annual maintenance cost is $15,000 per windmill. Kastvind is interested in installing 100 windmills. Each one will cost $200, 000 for the tower. generating station, and installation labour. These windmills will last about 15 years before any major in a) (4 marks) What is the net annual cash flow from 100 windmills? Show all work. SHI

Explanation / Answer

The discount rate is not mentioned in the question, Hence we assume it to be 10%.

Calculation of Net Cash outflow from installation of 100 windmills:

1) Upfront cost= 10,000,000

2) Tower, Generating station and labour cost= 2,00,000*100= 20,000,000

3) Annual Maintainence cost of 100 windmills for 15 years=15000*100=15,00,000*Present value annuity factor(10%,10 years)= 1500000*7.6061= 11,409,119

Net cash outflow from 100 windmills= 41,409,119$

Calculation of Net Cash Inflow from 100 windmills in 15 years=

Cash inflow from 1 windmill= 1000000 hours * 0.07$ per hour

=70000$

Cash inflow from 100 windmills in 1 year= 7,000,000

Cash inflow in 15 years= 7,000,000* PVAF(10%,10 YEARS)

=7000000*7.6061

=53,242,700$

Net Cash flow from 100 windmills in 100 years= 53242700-41409119

=11833581$

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