The Power to Cool Off in Florida

Advanced Corporate Finance Capital Budgeting Mini$-$case, $2024$ work for class discussion.

Due Wednesday, February $7^{th}$ by

the construction and cost $($including interest during

The Indiantown Cogeneration Project invelricity and steam. The cap it has an electric generating capacity

Martin County, Florida, that produces elle million. Since completic

construction$)$ was approximately $$540$ macity of $175,000$ pound calkins

of $330$ megawatts $($net$)$ and a stea $30-$year contract and the stearments have two parts: one for electric

power to New Era Energy untract. New Era's electricity preces. The project's financing consisted of $$420$

Company under a $15-$year the electric energy that it

capacity and the other APR interest rate debt and $$120$ mear $11.$ Depreciation is straight line to zero $20$

years. The tax rate is $25\%.$

megawatt$-$hours per year

Coal consumption

pounds per year

PRICES In YEAR $1,$

Electric capacity payment

$$375,000\mathrm{.}00$

per megawatt

and ANNUAL ESCALATION RATES

Electric energy payment

$24\mathrm{.}00$

per megawatt$-$hour

$1\%$

$4\%$

Steam price

per thousand pounds

$7\%$

Coal price

$29\mathrm{.}00$

perton

$4\mathrm{.}5\%$

FIRST$-$YEAR OPERATING COSTS,

Fuel delivery and waste disposal

Operations and maintenance

Other operating expenses

$$15$

$$15$

tons per year

and ANNUAL ESCALATION RATES

per ton of coal

million

million

$4\mathrm{.}5\%$

$3\%$

$3\%$

QUESTIONS

Develop a spreadsheet to estimate the project's after$-$tax cash flows for each of the $30$ years of the

project.

Using $8\mathrm{.}15\%$ as the cost of capital, and assuming a zero salvage value, calculate the project's NPV

and IRR.

The debt was issued a year before the project was completed. Calculate the interest coverage ratio

and cash flow coverage ratio for each of years $10($the first year of the sinking fund, year $11$ of the

debt$)$ through year $20.$

Will the project be able to meet its annual debt service obligations?

THINK about your spreadsheet construction and layout. There should be a single source point for every

given number or assumption. They should all be easy to find and update in your spreadsheet.