Question
Urgent! kindly Help with this Economics problem. An energy company wants to construct a 500MW offshore wind farm. It will take 4 years for the
Urgent! kindly Help with this Economics problem.
An energy company wants to construct a 500MW offshore wind farm.
It will take 4 years for the design, construction, purchase, production and construction of the turbines until they can go into operation.
The time that they begin operation is referred to as time 0
The costs for the 4 previous years are as follows:
Year | Amt |
1 | $31931540 |
2 | $79828850 |
3 | $239486550 |
4 | $319315400 |
Cost of operating and maintaining the turbines = 127726160/year( from year 1 to 20)
Estimated production = 2000000 MWh annually
Discount rate = 10% per year
All cash flows are attributable to the end of the years.
Find:
a.Draw the cash flow diagram from the companys perspective
b. What is the capital value of the investments in the four years before the turbines are put into operation, calculated at time 0
c. If the price of electricity is to be constant for 20 years, what would be the minimum profit for the offshore wind farm.
d. If electricity price starts at 0.15/kWh at year 1 and drops by 5% every year, would the offshore wind farm be profitable?
e. If life expectancy increases from 20 to 25 years, what should be the minimum electricity price for the investment in the offshore wind farm to be profitable?
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