The Province of BC recently posted an RFQ (request for quotation) for a supplier to supply it with 10,000,000 MWh (Megawatt Hours) of electricity per year for the next 10 years. If you decide to bid on the project, you know that you will have to purchase and install $100,000,000 of specialized equipment for generating the power. The equipment will be depreciated at a 10% CCA rate, using the Accelerated Investment Incentive method. At the end of the contract, you believe that you will be able to sell the asset for $25,000,000. The fixed production costs are $500,000 per year and the variable costs are $0.02 per MWh. You estimate that your NWC will initially rise by $175,000 at the start of the project but you will recover all of this when the project terminates. The firm's tax rate is 30% and you want to earn a 20% return. What price should you bid per MWh? The correct value for Step #1 (cost of the equipment plus delivery & installation minus trade-in is)? 0-$100,175,000 0-$100,000,000 OZero 0-$60,000,000 0-$75,000,000 The correct value for Step #2 (PV of net after-tax operating revenues minus expenses) is? 0-$3,815,273 O-$3,651,986 O-$2,054,211 None of the above are correct O-$2,270,982 The correct value for Step #3 (PV of tax shield from CCA) IS! O$10,833,333 O$20,550,980 O$10,655,800 O$11,377,300 $11,225,650 The correct value for Step #4 (PV of salvage) is? O$3,820,400 O$3,215,000 O$2,488,990 O$4,037,640 O$2,888,110 The correct value for Step #5 (PV of the tax shield lost due to salvage) is? 0-$403,764 O-$450,224 O-$510,988 0-$562,190 $578.777 The Province of BC recently posted an RFQ (request for quotation) for a supplier to supply it with 10,000,000 MWh (Megawatt Hours) of electricity per year for the next 10 years. If you decide to bid on the project, you know that you will have to purchase and install $100,000,000 of specialized equipment for generating the power. The equipment will be depreciated at a 10% CCA rate, using the Accelerated Investment Incentive method. At the end of the contract, you believe that you will be able to sell the asset for $25,000,000. The fixed production costs are $500,000 per year and the variable costs are $0.02 per MWh. You estimate that your NWC will initially rise by $175,000 at the start of the project but you will recover all of this when the project terminates. The firm's tax rate is 30% and you want to earn a 20% return. What price should you bid per MWh? The correct value for Step #1 (cost of the equipment plus delivery & installation minus trade-in is)? 0-$100,175,000 0-$100,000,000 OZero 0-$60,000,000 0-$75,000,000 The correct value for Step #2 (PV of net after-tax operating revenues minus expenses) is? 0-$3,815,273 O-$3,651,986 O-$2,054,211 None of the above are correct O-$2,270,982 The correct value for Step #3 (PV of tax shield from CCA) IS! O$10,833,333 O$20,550,980 O$10,655,800 O$11,377,300 $11,225,650 The correct value for Step #4 (PV of salvage) is? O$3,820,400 O$3,215,000 O$2,488,990 O$4,037,640 O$2,888,110 The correct value for Step #5 (PV of the tax shield lost due to salvage) is? 0-$403,764 O-$450,224 O-$510,988 0-$562,190 $578.777
