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WindFarm Reno is considering the purchase of wind turbines at a cost of $100 million as of 1/1/ 2013. The company expects the wind
WindFarm Reno is considering the purchase of wind turbines at a cost of $100 million as of 1/1/ 2013. The company expects the wind turbines to operate at an average capacity of 70 megawatts (mW) per hour. The current price of electricity is $50 per mW-hour and WindFarm Reno thinks that this price will be stable for the next few years. Maintenance costs are $10 million per year. All costs and revenues occur at the end of the year. Suppose the wind turbines will last 5 years, and the turbines must be depreciated straight line over these 5 years. There is no salvage value and the forgone rental value of the land is negligible. Profits are taxed at 30% and WindFarm Reno's cost of capital is 10%. a) What is the project's NPV? (Hint: there are 8,760 hours in a year) b) To encourage renewable energy, a bill has been put before Congress that would eliminate taxes on wind farms. Would this change WindFarm Reno's decision on whether to purchase the turbines?
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Step: 1
a To calculate the projects NPV we need to first calculate the annual cash flows Revenue 70 mW x 876...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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