Question 1

1. Select any three measures of project worth you have studied. Explain how they are calculated and the criteria used by them to decide on project worth. Discuss the advantages and disadvantages of each measure of project worth in evaluating energy projects.
2. Explain the reasons for the Time Value of Money and explain how a positive discount rate can affect the viability of a project.
3. Explain what is meant by mutually exclusive projects, giving suitable energy project examples.

Question 2

By comparing the Levelized Cost of Energy, determine the more cost effective energy delivery option between a coal thermal plant and a hydro-electric plant with investment parameters shown on Table 1.

Table 1: Coal and Hydro Plant Comparison

General Parameters
Interest rate (i)	7%
Inflation rate (j)	3%
Time horizon (n)	25
Investment parameters	Hydro	Coal
Power (MW)	720	600
Time of full load (h/year)	6500	7,800
Specific investment cost ($/kW)	3,500	1,500
O&M cost/ (% of Io)	2%	5%
Coal consumption (t/y)	0	2,500,000
Coal price ($/t)	38	38
Life (N)	40	25

Question 3

An energy project with a lifespan of 15 years has investment parameters shown on Table 2.

Table 2: Parameters for Energy Project

Parameter	Value
Cut-off interest rate (i)	8%
Investment Cost (Io)	$5,000,000
Annual Revenue (R)	$1,000,000
Annual O & M Costs (C)	$ 200,000
Project Lifespan (N)	15 years

1. Write down the NPV function for the project investment profile
2. Calculate the NPV and IRR for the project
3. Perform a sensitivity analysis and determine the indifferent points for each of the 5 project variables
4. Determine the project variable to which project viability is (i) least and (ii) most sensitive

Question 4

Two mutually exclusive investment projects have investment profiles shown on Table 3.

Table 3: Investment profiles of 2 mutually exclusive projects

Investment Parameter	Project A	Project B
Interest rate	7%	7%
Project Lifespan	15 years	12 years
Investment	9,500,000	6,800,000
Annual O & M (year 1 to 5)	1,000,000	500,000
Annual O & M (rest of life)	1,200,000	600,000
Annual Revenue (year 1 to 5)	3,000,000	2,000,000
Annual Revenue (rest of life)	3,300,000	2,400,000

1. Calculate the NPV and IRR for each project. Is each project financial viable on its own merit?
2. Using the incremental project approach, select the more suitable project to implement.
3. At what discount rate would you be indifferent about implementing either project?