Vestas is concerned about the higher interest rate (8%) that NC Bank charges on the blades...

     

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Vestas is concerned about the higher interest rate (8%) that NC Bank charges on the blades loan. In comparison, the turbine loan is less expensive (7%). Given that NC Bank encourages voluntary loan principal repayments, with a 3% penalty, you want to investigate the possibility of repaying the blades loan principal as early as possible. Starting from the provided APV model, proceed as follows: A) Early repayment of blades loan (in "Financing") Insert a new independent variable that corresponds to the percentage of annual operating FCF that will be used to repay the loan principal, each year. You may consider starting at 10% of annual operating FCF to be used to repay the loan principal. Insert a new independent variable that corresponds to the annual penalty rate (3%) that NC Bank will charge on annual principal prepayments. Update the annual Financing Flows model for Blades loan so that it accounts for the two new independent variables. B) Recommend a repayment plan What % of FCF do you recommend as loan principal repayment so that the project is still profitable? Support your recommendation with a Data Table. Briefly explain in "Recommendation". Vestas is concerned about the higher interest rate (8%) that NC Bank charges on the blades loan. In comparison, the turbine loan is less expensive (7%). Given that NC Bank encourages voluntary loan principal repayments, with a 3% penalty, you want to investigate the possibility of repaying the blades loan principal as early as possible. Starting from the provided APV model, proceed as follows: A) Early repayment of blades loan (in "Financing") Insert a new independent variable that corresponds to the percentage of annual operating FCF that will be used to repay the loan principal, each year. You may consider starting at 10% of annual operating FCF to be used to repay the loan principal. Insert a new independent variable that corresponds to the annual penalty rate (3%) that NC Bank will charge on annual principal prepayments. Update the annual Financing Flows model for Blades loan so that it accounts for the two new independent variables. B) Recommend a repayment plan What % of FCF do you recommend as loan principal repayment so that the project is still profitable? Support your recommendation with a Data Table. Briefly explain in "Recommendation". 1 AllY 2 Back to Index B C D E F G H M 3 Value drivers: Operations 4 Fixed cost (annual) 5 Fixed cost annual increase 30,000,000 1.00% 6 Energy generated (MW/H per year) 15,000,000 7 Sale price (per KW/H) 8 Cost of operation (% of sales) 0.16 10.00% 10 ONWC requirement (% of sales) 9 ONWC (2021) 11 Income tax rate 12 WACC 13 Cost of equity 14 15 Model: Unlevered Operating FCFs 16 17 Table 2-Time line 18 Contractual Sales 19 Variable costs 50,000,000 5.00% 21.00% 10.00% 11.00% 12/31/21 20 Fixed costs 21 Depreciation 12/31/22 2,400,000,000 240,000,000 30,000,000 425,000,000 12/31/23 2,400,000,000 240,000,000 30,300,000 425,000,000 12/31/24 2,400,000,000 240,000,000 30,603,000 425,000,000 12/31/25 2,400,000,000 240,000,000 30,909,030 425,000,000 12/31/26 2,400,000,000 240,000,000 31,218,120 425,000,000 12/31/27 12/31/28 12/31/29 12/31/30 2,400,000,000 2,400,000,000 2,400,000,000 2,400,000,000 12/31/31 2,400,000,000 240,000,000 31,530,302 240,000,000 31,845,605 1,425,000,000 1,425,000,000 240,000,000 32,164,061 1,425,000,000 240,000,000 32,485,701 1,425,000,000 240,000,000 32,810,558 1,425,000,000 22 EBIT 23 taxes 24 Net operating Income 25 Depreciation 1,346,950,000 425,000,000 26 Capital Expenditure (10,000,000,000) 27 ONWC 50,000,000 120,000,000 120,000,000 120,000,000 1,705,000,000 1,704,700,000 1,704,397,000 1,704,090,970 1,703,781,880 358,050,000 357,987,000 357,923,370 357,859,104 357,794,195 1,346,713,000 1,346,473,630 1,346,231,866 1,345,987,685 555,741,062 425,000,000 425,000,000 425,000,000 425,000,000 1,425,000,000 (3,815,000,000) 120,000,000 120,000,000 28 Change in ONWC 70,000,000 29 30 NPV of Operating 50,000,000 703,469,698 703,154,395 702,835,939 702,514,299 702,189,442 147,728,637 147,662,423 147,595,547 147,528,003 147,459,783 555,491,972 555,240,392 554,986,296 554,729,659 1,425,000,000 1,425,000,000 1,425,000,000 1,425,000,000 3,182,500,000 120,000,000 120,000,000 120,000,000 (120,000,000) FCF (10,050,000,000) 1,701,950,000 1,771,713,000 1,771,473,630 1,771,231,866 (2,044,012,315) 1,980,741,062 1,980,491,972 1,980,240,392 1,979,986,296 5,282,229,659 (326,392,883) 120,000,000 31 NPV of Financing 32 APV 910,218,929 583,826,046 33 34 35 36 37 1 A11Y 2 Back to Index 3 Value drivers: Financing 4 5 Turbines 6 Purchase price 7 Amortized loan maturity (years) 8 Loan interest 9 Annual required payments 10 11 Blades 12 Purchase price 13 Interest only loan maturity (years) 14 Loan interest 15 FCF 16 17 Model: DCF using Annual Financing Flows 18 19 Turbines 20 Starting principal 21 Interest 22 Interest tax shield 23 Principal repayment 24 Ending principal 25 26 27 28 Blades 29 Starting principal 30 Interest 31 Interest tax shield 32 Ending principal 33 34 35 36 B E F G H J 10,000,000,000 10 7.00% 1,423,775,027 5,000,000,000 5 8.00% 12/31/21 10,000,000,000 12/31/22 10,000,000,000 700,000,000 147,000,000 723,775,027 9,276,224,973 12/31/23 9,276,224,973 649,335,748 136,360,507 774,439,279 8,501,785,694 12/31/24 8,501,785,694 595,124,999 124,976,250 828,650,029 7,673,135,665 12/31/25 7,673,135,665 537,119,497 112,795,094 886,655,531 6,786,480,134 10,000,000,000 Net equipment 1 flows NPV equipment 1 financing 12/31/26 6,786,480,134 475,053,609 99,761,258 948,721,418 5,837,758,716 12/31/27 5,837,758,716 408,643,110 85,815,053 1,015,131,917 4,822,626,799 12/31/28 4,822,626,799 337,583,876 70,892,614 1,086,191,151 3,736,435,648 12/31/29 3,736,435,648 261,550,495 54,925,604 12/31/30 2,574,211,116 180,194,778 37,840,903 12/31/31 1,330,630,867 93,144,161 19,560,274 1,162,224,532 2,574,211,116 1,243,580,249 1,330,630,867 1,330,630,867 10,000,000,000 (1,276,775,027) (1,287,414,520) (1,298,798,778) (1,310,979,933) (1,324,013,769) (1,337,959,974) (1,352,882,413) (1,368,849,423) (1,385,934,124) (1,404,214,754) 681,380,662 Net equipment 1 flows 12/31/21 NPV equipment 1 financing 228,838,268 12/31/22 12/31/23 12/31/24 12/31/25 12/31/26 5,000,000,000 5,000,000,000 - 5,000,000,000 12/31/27 5,000,000,000 400,000,000 84,000,000 5,000,000,000 (316,000,000) 12/31/28 5,000,000,000 400,000,000 84,000,000 5,000,000,000 (316,000,000) 12/31/29 5,000,000,000 400,000,000 84,000,000 5,000,000,000 (316,000,000) 12/31/30 5,000,000,000 12/31/31 400,000,000 5,000,000,000 400,000,000 84,000,000 84,000,000 5,000,000,000 5,000,000,000 (316,000,000) (5,316,000,000) Vestas is concerned about the higher interest rate (8%) that NC Bank charges on the blades loan. In comparison, the turbine loan is less expensive (7%). Given that NC Bank encourages voluntary loan principal repayments, with a 3% penalty, you want to investigate the possibility of repaying the blades loan principal as early as possible. Starting from the provided APV model, proceed as follows: A) Early repayment of blades loan (in "Financing") Insert a new independent variable that corresponds to the percentage of annual operating FCF that will be used to repay the loan principal, each year. You may consider starting at 10% of annual operating FCF to be used to repay the loan principal. Insert a new independent variable that corresponds to the annual penalty rate (3%) that NC Bank will charge on annual principal prepayments. Update the annual Financing Flows model for Blades loan so that it accounts for the two new independent variables. B) Recommend a repayment plan What % of FCF do you recommend as loan principal repayment so that the project is still profitable? Support your recommendation with a Data Table. Briefly explain in "Recommendation". Vestas is concerned about the higher interest rate (8%) that NC Bank charges on the blades loan. In comparison, the turbine loan is less expensive (7%). Given that NC Bank encourages voluntary loan principal repayments, with a 3% penalty, you want to investigate the possibility of repaying the blades loan principal as early as possible. Starting from the provided APV model, proceed as follows: A) Early repayment of blades loan (in "Financing") Insert a new independent variable that corresponds to the percentage of annual operating FCF that will be used to repay the loan principal, each year. You may consider starting at 10% of annual operating FCF to be used to repay the loan principal. Insert a new independent variable that corresponds to the annual penalty rate (3%) that NC Bank will charge on annual principal prepayments. Update the annual Financing Flows model for Blades loan so that it accounts for the two new independent variables. B) Recommend a repayment plan What % of FCF do you recommend as loan principal repayment so that the project is still profitable? Support your recommendation with a Data Table. Briefly explain in "Recommendation". 1 AllY 2 Back to Index B C D E F G H M 3 Value drivers: Operations 4 Fixed cost (annual) 5 Fixed cost annual increase 30,000,000 1.00% 6 Energy generated (MW/H per year) 15,000,000 7 Sale price (per KW/H) 8 Cost of operation (% of sales) 0.16 10.00% 10 ONWC requirement (% of sales) 9 ONWC (2021) 11 Income tax rate 12 WACC 13 Cost of equity 14 15 Model: Unlevered Operating FCFs 16 17 Table 2-Time line 18 Contractual Sales 19 Variable costs 50,000,000 5.00% 21.00% 10.00% 11.00% 12/31/21 20 Fixed costs 21 Depreciation 12/31/22 2,400,000,000 240,000,000 30,000,000 425,000,000 12/31/23 2,400,000,000 240,000,000 30,300,000 425,000,000 12/31/24 2,400,000,000 240,000,000 30,603,000 425,000,000 12/31/25 2,400,000,000 240,000,000 30,909,030 425,000,000 12/31/26 2,400,000,000 240,000,000 31,218,120 425,000,000 12/31/27 12/31/28 12/31/29 12/31/30 2,400,000,000 2,400,000,000 2,400,000,000 2,400,000,000 12/31/31 2,400,000,000 240,000,000 31,530,302 240,000,000 31,845,605 1,425,000,000 1,425,000,000 240,000,000 32,164,061 1,425,000,000 240,000,000 32,485,701 1,425,000,000 240,000,000 32,810,558 1,425,000,000 22 EBIT 23 taxes 24 Net operating Income 25 Depreciation 1,346,950,000 425,000,000 26 Capital Expenditure (10,000,000,000) 27 ONWC 50,000,000 120,000,000 120,000,000 120,000,000 1,705,000,000 1,704,700,000 1,704,397,000 1,704,090,970 1,703,781,880 358,050,000 357,987,000 357,923,370 357,859,104 357,794,195 1,346,713,000 1,346,473,630 1,346,231,866 1,345,987,685 555,741,062 425,000,000 425,000,000 425,000,000 425,000,000 1,425,000,000 (3,815,000,000) 120,000,000 120,000,000 28 Change in ONWC 70,000,000 29 30 NPV of Operating 50,000,000 703,469,698 703,154,395 702,835,939 702,514,299 702,189,442 147,728,637 147,662,423 147,595,547 147,528,003 147,459,783 555,491,972 555,240,392 554,986,296 554,729,659 1,425,000,000 1,425,000,000 1,425,000,000 1,425,000,000 3,182,500,000 120,000,000 120,000,000 120,000,000 (120,000,000) FCF (10,050,000,000) 1,701,950,000 1,771,713,000 1,771,473,630 1,771,231,866 (2,044,012,315) 1,980,741,062 1,980,491,972 1,980,240,392 1,979,986,296 5,282,229,659 (326,392,883) 120,000,000 31 NPV of Financing 32 APV 910,218,929 583,826,046 33 34 35 36 37 1 A11Y 2 Back to Index 3 Value drivers: Financing 4 5 Turbines 6 Purchase price 7 Amortized loan maturity (years) 8 Loan interest 9 Annual required payments 10 11 Blades 12 Purchase price 13 Interest only loan maturity (years) 14 Loan interest 15 FCF 16 17 Model: DCF using Annual Financing Flows 18 19 Turbines 20 Starting principal 21 Interest 22 Interest tax shield 23 Principal repayment 24 Ending principal 25 26 27 28 Blades 29 Starting principal 30 Interest 31 Interest tax shield 32 Ending principal 33 34 35 36 B E F G H J 10,000,000,000 10 7.00% 1,423,775,027 5,000,000,000 5 8.00% 12/31/21 10,000,000,000 12/31/22 10,000,000,000 700,000,000 147,000,000 723,775,027 9,276,224,973 12/31/23 9,276,224,973 649,335,748 136,360,507 774,439,279 8,501,785,694 12/31/24 8,501,785,694 595,124,999 124,976,250 828,650,029 7,673,135,665 12/31/25 7,673,135,665 537,119,497 112,795,094 886,655,531 6,786,480,134 10,000,000,000 Net equipment 1 flows NPV equipment 1 financing 12/31/26 6,786,480,134 475,053,609 99,761,258 948,721,418 5,837,758,716 12/31/27 5,837,758,716 408,643,110 85,815,053 1,015,131,917 4,822,626,799 12/31/28 4,822,626,799 337,583,876 70,892,614 1,086,191,151 3,736,435,648 12/31/29 3,736,435,648 261,550,495 54,925,604 12/31/30 2,574,211,116 180,194,778 37,840,903 12/31/31 1,330,630,867 93,144,161 19,560,274 1,162,224,532 2,574,211,116 1,243,580,249 1,330,630,867 1,330,630,867 10,000,000,000 (1,276,775,027) (1,287,414,520) (1,298,798,778) (1,310,979,933) (1,324,013,769) (1,337,959,974) (1,352,882,413) (1,368,849,423) (1,385,934,124) (1,404,214,754) 681,380,662 Net equipment 1 flows 12/31/21 NPV equipment 1 financing 228,838,268 12/31/22 12/31/23 12/31/24 12/31/25 12/31/26 5,000,000,000 5,000,000,000 - 5,000,000,000 12/31/27 5,000,000,000 400,000,000 84,000,000 5,000,000,000 (316,000,000) 12/31/28 5,000,000,000 400,000,000 84,000,000 5,000,000,000 (316,000,000) 12/31/29 5,000,000,000 400,000,000 84,000,000 5,000,000,000 (316,000,000) 12/31/30 5,000,000,000 12/31/31 400,000,000 5,000,000,000 400,000,000 84,000,000 84,000,000 5,000,000,000 5,000,000,000 (316,000,000) (5,316,000,000)