The new facility will be an 800-Megawatt (MW) coal fired power plant on land you own adjacent to the old one, to be depreciated over its 30-year life using the Straight-Line Depreciation (SLD) Method, with an estimated salvage value at the end (refer to the Solution Outline). Due to efficiencies in equipment design and layout, the new facility requires the same area (600 acres) as the previous one.

The facility is designed to have an 80% capacity factor each year with at a 35% overall fuel efficiency. The annual operating and maintenance expenses are expected to be $0.01/kWh. The cost of coal is $2/million BTU's, and a carbon (CO₂) tax of $10 per metric ton, MT (2205 pounds), for its useful life, is to be included. Note that coal emits 90 metric tons of CO₂ per billion BTU produced (the electrical energy to heat conversion is 1 kWh = 3,413 BTU). The Company has an effective tax rate of 40% and requires a before tax MARR of 10%. To account for inflation, the operating and maintenance costs are projected to rise to $0.02/kWh and the cost of coal to rise to $3/million BTU's starting at the EOY 15 for the balance of its useful life.

Electrical Energy is projected to be sold for $0.10/kWh through EOY 14 and increased to $0.12/kWh at EOY 15 for the balance of its useful life.

For estimating purposes, use a cost index for all (equipment and labor) costs in 1990 of 105 and the latest comparable adjusted index of 192 for all costs. In addition, the capacity (parametric) factor for all similar equipment has been determined from experience to be 0.6. Allowance for uncertainty (Contingency) in the estimates to establish the overall budget should follow the common practice discussed in the Slides on Background Information.

In 1990, the Level 2 cost breakdown structure for equipment half (1.2-1.4) as large, unless noted (please refer to the Work Breakdown Structure, Figure 1, for all Level 3 sub-elements included), was:

Site Work area unchanged(1.1)$2000/acre

Boiler Components (1.2)$380 million

Boiler Support System Components (1.3) $130 million

Coal Storage Facility Components (1.4)$25 million

Support Facilities and Equipment (same size)(1.5) $95 million

Project Integration-assume 195,000 manhours unchanged (1.9)$60/manhour

Part 1 (Please refer to Example 7-14, pg 341 for similar Revenue and operating cost issues, Subchapters 3.3-3.4 for investment cost calculations included in the Slides on Background Information, and Solution Outline as an aide in laying out the issues.) Include allowances for uncertainty (contingency) in a and b below, as discussed in the Background Slides. PPT should comment on the profitability by addressing:

a- A tabulation of each item in establishing your estimate and budget. Use this as the investment cost for your analysis.

b- A tabulation of the calculation of all costs and revenue. Use the groupings on the Solution Outline.

c- A Before Tax Cash Flow tabulation and Before Tax Cash Flow Diagram.

d- The Before Tax Present Worth. Is it a good investment and why?

e- The Before Tax Internal Rate of Return of the investment.