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PROJECT APPRAISAL FOR POWERPLANT COMPANY The PowerPlant Company (PC) has received initial planning consent for an Advanced Water Processing Project. This project is one of
PROJECT APPRAISAL FOR POWERPLANT COMPANY The PowerPlant Company (PC) has received initial planning consent for an Advanced Water Processing Project. This project is one of a number that has been commissioned by the Government of Rosyland to help solve the water needs of its expanding population The project proposal is now moving to the detailed planning stage which will include a full investment appraisal within the financial plan. The financial plan so far developed has been based upon experience of this design in Japan, the US and South Korea The core macro-economic assumptions are that Rosyland GDP will grow at an annual rate of 4% (nominal) and inflation will be maintained at the 2% target set by the Government The construction programme is expected to cost $1 billion over three years, with construction commencing in January 20X2. These capital expenditures have been projected, including expected future cost increases as follows: 20X3 Year end Construction costs (5 million) 20X2 300 20X4 100 600 Processing of water will commence in 20X5 and the annual operating surplus in cash terms is expected to be $100 million per annum (at 1 January 20X5 price and cost levels). This value has been well validated by preliminary studies and includes the cost of reprocessing, ongoing maintenance and systems replacement as well as the continuing operating costs of running the plant. The operating surplus is expected to rise in line with nominal GDP growth. The plant is expected to have an operating life of 30 years Decommissioning costs at the end of the project have been estimated at 5600 million at current (20X2) costs. Decommissioning costs are expected to rise in line with nominal GDP growth. The company's nominal cost of capital is 10% per annum. All estimates, unless otherwise stated, are at 1 January 20X2 price and cost levels Required: Produce a preliminary briefing note which, on the basis of the above information, includes: (a) An estimate of the net present value for this project as at the commencement of construction in 20X2 (b) A discussion of the principal uncertainties associated with this project
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