Suppose you are required to analyse the financing cash flows for UQ solar farm in Gatton. 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. Assuming a 5.5% discount rate,

a. Calculate the NPV of the net cash flows of UQ solar farm in $ million and the IRR in %.

b.lIf the loan interest rate will be increased by 2% p.a. starting from year 6 calculate the NPV and the IRR

c. using the IRR rules should the project be accepted or rejected?