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the following questions based on this scenario: A general contractor in the energy sector is considering a long- term Build-Operate-Transfer investment option for building an
the following questions based on this scenario: A general contractor in the energy sector is considering a long- term Build-Operate-Transfer investment option for building an electricity generating powerplant project in Alberta. The minimum attractive rate of return (MARR) the company requires is 10%. The annual rate of inflation for years 1-5 is 1.8%, years 6-10 is 2.0%, years 11-12 is 2.3%, years 13-15 is 2.1%, years 16-20 is 2.2%. Construction will last 4 years and then commercial operations would begin. Cash flows are as follows: Year(s) Items Cash Flows Initial cost (mobilization, legal, initial deposits for suppliers to secure equipment and materials, site security, etc) -$400,000 1-4 Construction costs Year 1: -$13,000,000 Year 2: -$30,000,000 Year 3:-$43,000,000 Year 4:-$14,000,000 5 Annual operating and maintenance costs 6-20 Annual operating and maintenance costs (indexed / adjusted for rate of inflation) -$1,300,000 Previous year's O&M costs rate of inflation adjustment 0 Revenue $15,000,000 20 Remaining service value (RSV) Note: RSV is similar to salvage value $6,000,000 If the powerplant was operational right now, revenues would be approximately $15,000,000 this year alone. It is safe to assume that these revenues would rise with the cost of inflation for the following 5 years, then increasing at twice the pace of inflation for the following 5 years and settling at an annual growth rate of 2.5 times the rate of inflation for the remaining plant's service life. What is the NPV for the project. Write your calculations here or paste a snapshot (image or table) from excel. Do not upload the excel sheet. What is the Simple payback period for the project. What is the IRR for the project. What is the BCR (benefit-cost ratio) for the proiect. Should they go ahead with the investment?? discuss why or why not
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