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Introduction We designed this exercise to test simple modeling and Excel skills. We would like to emphasize that we do not intend to consume many

Introduction
We designed this exercise to test simple modeling and Excel skills. We would like to
emphasize that we do not intend to consume many hours of the candidates time.
Rather, we prefer a focus on simple, clear, concise, efficient and logical modeling.
Clean formatting and presentation of results are important. There is no template for
this exercise this document and MS Excel is all that you will need.
The Situation
You are on a plane flying to a meeting with your boss and have the good fortune of
sitting next to her. For the meeting, she must know whether the Arevon Investment
team wants to pursue an investment opportunity called Blue Horseshoe Solar (BHS).
Unfortunately, there is no wireless on this flight and you brought a personal laptop
without a template. You need to build a quick model from scratch using only the few
assumptions available. Here is what you know:
Blue Horseshoe Solar is a 250MWac (Megawatt-Alternating Current) solar photovoltaic project in
Paradise, USA. It is a single-site, ground-mounted solar array that will provide electrical energy
to Anacott Steel under a long-term contract. Because Anacott Steel has a plant located next to
the project site, the energy delivery point is at the projects substation.
Production: BHS is located in Paradise, USA, where there is plenty of sunshine. As we will build
the plant with the latest PV modules, the ratio of MWdc to MWac is 1.25x and the annual
production assessment is 2,250 MWh/MWdc (net of availability and electrical losses).
Construction Cost: An engineering firm has proposed a cost of $1.05 per Wdc to construct the
full 250MWac plant (including substation and balance of system). They have requested a full 12
months to build BHS. Payment terms call for 10% upfront with balance paid in equal monthly
milestones.
Development Fee: $0.05 per Wdc, to be at the Commercial Operations Date (COD).
Timing: If approved by the Arevon Investment Committee, your fund will fully acquire BHS on
December 31,2023.
Lifetime: The project will operate for 35 years. You know that plants of this type degrade at
0.5% in output per year. There are no decommissioning costs.
Operating costs: the same engineering firm that is building the project will provide the
operations and maintenance (O&M) services for $3.50 per installed kWdc of capacity,
escalated at 2% p.a.
Land Lease: The project leases its land from a local owner for 35 years at a cost of $1,000,000
p.a., escalated at 1% annually.
Energy sales: Anacott Steel will purchase 100% of the power from the project for $40 per MWh
(Megawatt-hour) through a 35-year Power Purchase Agreement (PPA).
Terminal Value: Please assume a terminal value equal to 10% of total capital expenditures.
Clarifications
There are no additional costs or expenses besides those described above
Please build a quarterly model.
Cash flow based only 3 statements are not required
Feel free to use any approach you are comfortable with and consider professional
Return Metrics & Sensitivities
Return Metrics
- Unlevered pre-tax IRR
- Levered pre-tax IRR
- Levered pre-tax average cash yields (5-years, 10-years, 20-years, each from COD)
Sensitivities
- What is the impact on returns if payment of the development fee was at the start of
construction?
- What would be the impact to returns from adding a 2% annual escalator to the PPA price?
- What would be the impact to returns if land lease costs were USD 2,000,000 in year 1 versus
USD 1,000,000?
Assume no leverage/debt on the project, so you dont have to worry about unlevered versus levered IRR.
The ask is to construct a model commencing 1st January 2024 with one year of construction time and 35 years of operations (Total of 36 years to be broken down into 144 quarters in line with the requirement of the quarterly model).
You only need the attached pdf and a blank excel workbook.

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