Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose you are required to analyse the financing cash flows for UQ solar farm in Warwick. The investment cost of the project is 125 million

image text in transcribed
image text in transcribed
Suppose you are required to analyse the financing cash flows for UQ solar farm in Warwick. The investment cost of the project is 125 million dollars and UQ has borrowed the full amount from Commonwealth Bank at an annual interest rate of 3.5%. The loan term equals the project life of 25 years. The solar farm is estimated to generate 120,000 megawatts (1 megawatt = 1000 kilowatts) of energy each year and will be sold to the grid at a fixed Feed-in-tariff rate of 15 cents per kilowatt. Assume a 5% discount rate, the NPV of the net cash flows of UQ solar farm is $ million and the IRR is 9%. If the loan interest rate will be increased by 2% p.a. starting from year 6. The NPV will be changed to $ million and the IRR will be changed to 96. By using the IRR rule, UQ should (accept/reject) the project. In your answer, decompose the principal, interest and net cash flow for UQ using a conversion factor of 100,000. Assume there are no taxes paid on this project. (hint: calculate the remaining principal owed on the remaining 20 years of the loan)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cambridge International AS And A Level Economics Coursebook

Authors: Colin Bamford, Susan Grant

3rd Edition

1107679516, 978-1107679511

More Books

Students also viewed these Economics questions

Question

Pollution

Answered: 1 week ago

Question

The fear of making a fool of oneself

Answered: 1 week ago