A solar farm is currently for sale at $11,000. Solar Harvest Inc. purchases this farm with...

 

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A solar farm is currently for sale at $11,000. Solar Harvest Inc. purchases this farm with the intention of using solar panels for future electricity production. The total cost associated with upgrading the farm's existing solar facility is $85,000. This cost is divided into six equal monthly instalments paid in advance, with the first payment coinciding with the acquisition of the farm. The commencement of electricity production is scheduled six months after the farm is purchased. Due to the farm facility upgrades, it produces 80,000 units of electricity per annum, and a uniform production is assumed over each year. Solar Harvest Inc. intends to sell the electricity production to a power supplier at a rate of $0.12 per unit. In exchange, it receives the payments of electricity production from this power supplier quarterly in arrears. The amount of electricity production decreases over time due to the depreciation of the solar panels. Specifically, electricity production is reduced by 0.5% per annum. This decline occurs annually, with the first 0.5% decrease taking place 6 months after the commencement of the electricity production. Solar Harvest Inc. starts monthly maintenance work half-year after the commencement of electricity production. The predicted maintenance costs are $1,000 per annum, and this cost occurs monthly in arrears. Annual maintenance costs increase by 3% per annum, with the first 3% increase occurring 1 year after the maintenance work starts. The risk discount rate (RDR) is 6.25% p.a. effective. a) Create an annual cashflow schedule for Solar Harvest Inc. covering the initial 30-year horizon of the project. b) Use the schedule from part (a) to calculate: i. ii. The accumulated profit 30 years after (i.e., at t-30 years). The year (or the time) when the project's accumulated profit turns from negative to positive. A solar farm is currently for sale at $11,000. Solar Harvest Inc. purchases this farm with the intention of using solar panels for future electricity production. The total cost associated with upgrading the farm's existing solar facility is $85,000. This cost is divided into six equal monthly instalments paid in advance, with the first payment coinciding with the acquisition of the farm. The commencement of electricity production is scheduled six months after the farm is purchased. Due to the farm facility upgrades, it produces 80,000 units of electricity per annum, and a uniform production is assumed over each year. Solar Harvest Inc. intends to sell the electricity production to a power supplier at a rate of $0.12 per unit. In exchange, it receives the payments of electricity production from this power supplier quarterly in arrears. The amount of electricity production decreases over time due to the depreciation of the solar panels. Specifically, electricity production is reduced by 0.5% per annum. This decline occurs annually, with the first 0.5% decrease taking place 6 months after the commencement of the electricity production. Solar Harvest Inc. starts monthly maintenance work half-year after the commencement of electricity production. The predicted maintenance costs are $1,000 per annum, and this cost occurs monthly in arrears. Annual maintenance costs increase by 3% per annum, with the first 3% increase occurring 1 year after the maintenance work starts. The risk discount rate (RDR) is 6.25% p.a. effective. a) Create an annual cashflow schedule for Solar Harvest Inc. covering the initial 30-year horizon of the project. b) Use the schedule from part (a) to calculate: i. ii. The accumulated profit 30 years after (i.e., at t-30 years). The year (or the time) when the project's accumulated profit turns from negative to positive.

Answer rating: 100% (QA)

Solution Here is the annual cashflow schedule for the 30year horizon Year Cash Inflows Ca... View the full answer