This is due this Friday 5:00 pm on Friday.

There is one question to evaluate which turbine company do I need to buy.

I can write memorandum, but I want calculation with excel. Also, I attached a excel file that my professor went over.

I think that we might need to use this format, but I was not sure. Therefore, I would rather ask coursehero's professional teachers.

Spring 2016 - EBF 304W Memorandum 2 Due: 5:00pm on Friday, 26 February 2016 (via ANGEL) 50 points Instructions: Utilize the provided template for formatting your memo; do not change any of the margins, line spacing, or fonts. Completely answer the following question(s) in no more than 2 pages. You should utilize figures or tables if they aid in comprehension of your response. Graphs or tables must be appropriately captioned and clear enough that I can understand them (this means labeling axes, variables, and so forth). Your memo must be submitted in a single electronic file in pdf file format. Late assignments will lose 10% per late day (e.g., late day 1 begins at 5:01pm on the due date and ends at 5:00pm on the following day). Keep in mind that this assignment continues on with everything you know from the Memo 1 assignment unless specifically contradicted below. Question 1 (50 points): You have just received three new important pieces of information on the power plant options available to your company. First, the manufacturers have updated their purchase prices, And, you now know that the fuel efficiency of the power plants is not constant, but degrades over time until, eventually, an expensive overhaul is required that returns the plant to its original operating conditions. The rate of decrease of the fuel efficiency is given in the figures below, along with the costs of the overhaul. Evaluate how this would change your decision regarding which turbine to buy. Parameter New Purchase Price Fuel Efficiency Degradation Rate Overhaul Frequency Overhaul Expenses Rolls Royce Simple Cycle Generator General Electric Combined Cycle Generator $445 million $675 million 0.1 million Btu/MWh 0.4 million Btu/MWh 7 years $10 million 5 years $50 million Figure 1: Rolls Royce Fuel Efficiency Page 1 of 2 Figure 2: GE Combined Cycle Fuel Efficiency Second, based on market research, your company now believes that they can sell the power plant at the end of 20 years to another buyer according to the values shown in the table below. This should be counted as revenue at the end of year 20 of the project. Parameter Residual Value Rolls Royce Simple Cycle Generator General Electric Combined Cycle Generator $350 million $200 million Third, you have learned that an economist has been able to improve our information and place probabilities on potential future natural gas prices. The probabilities of gas prices in various ranges are given in the table below. Use the midpoint of each range, and re-assess your decision on which turbine technology to purchase. Prices ($/MMBtu) Probability Gas Prices Low Gas Prices Moderate Gas Prices High Gas Prices Very High 1.00-2.00 2.00-4.00 4.00-8.00 8.00-12.00 0.3 0.25 0.25 0.15 Lastly, instead of 10%, new management at the company has specified the use of a 15% discount rate for all financial planning. Page 2 of 2 Decision Sensitivity Analysis (All Values in $ Millions) NPV of Project 1 $53.59 NPV of Project 2 $46.23 Project 1 CapEx 380 -250 380 -250 Emissions -20 -20 110 110 320 -150 -5 320 -150 -5 165 165 Residual Cash Flow Best Option -500 Elec Income Fuel Costs -500 Project 1 Project 2 0.00% Capital Expenditures 500 0.00% Electricity Income 500 0.00% Fuel Costs 500 0.00% Emissions 500 0.00% Residual Value 500 10.00% Discount Rate 500 CapEx Elec Income Fuel Costs Emissions Residual Cash Flow -750 -750 380 -250 380 -250 -20 -20 300 410 110 320 -150 -5 165 320 -150 -5 400 565 Decision Sensitivity Analysis (All Values in $ Millions) Project 1 NPV Difference Change in Emissions Permit Costs (+/- 50%) $175.00 $50.00 Change in Electricity Prices (+/- 25%) ($50.00) $250.00 Change in Discount Rate from 5% to 15% ($150.00) $250.00 Change in Fuel Costs (+/- 50%) ($100.00) $350.00 Change in Capital Expenditures (+/- 25%) ($250.00) $300.00 ($125.00) $ 225.00 $300.00 $400.00 $450.00 $550.00 Change in Capital Expenditures (+/- 25%) ($250.00) $300.00 $350.00 Change in Fuel Costs ($100.00) (+/- 50%) Change in Discount Rate from 5% to 15% ($150.00) Change in Electricity Prices (+/-($50.00) 25%) Change in Emissions Permit Costs (+/- 50%) ($325.00) ($225.00) ($125.00) ($25.00) $250.00 $250.00 $175.00 $75.00 $50.00 $175.00 Project NPV ($ millions) $275.00 $375.00 $475.00 0 $375.00 $475.00 Discount Rate 90% 92% Capital Expenditures 94% 96% 98% 100% 102% 104% 106% 108% 110% 0% 2% 4% 6% 8% 10% 12% 14% 16% 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 1 2 2 2 2 2 2 2 1 1 1 1 2 2 2 2 2 1 1 1 1 1 1 Project 1 Cash Flow 18% 20% 2 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 -100 25 25 25 25 25 40 40 40 40 Project 2 Cash Flow -150 40 Choose Project 1 110% Change108% in Capital Expenditures 106% 104% 102% 100% 98% Choose Project 2 96% 94% 92% 90% Discoutn Rate Project 1 CapEx Elec Income Fuel Costs Emissions Residual Cash Flow Project 2 CapEx Elec Income Fuel Costs Emissions Residual Cash Flow Discount Rate -500 -500 380 -250 -20 380 -250 -20 380 -250 -20 110 110 110 320 -150 -5 320 -150 -5 320 -150 -5 165 165 165 380 -250 -20 300 410 -750 -750 320 -150 -5 400 565 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% CapEx -15% -10% -5% 0% 5% 10% 15% Project 1 NPV Project 2 NPV $ $ $ $ $ $ $ $ $ $ $ 240.00 196.00 155.73 118.79 84.84 53.59 24.76 (1.87) (26.51) (49.36) (70.56) $ $ $ $ $ $ $ $ $ $ $ 310.00 247.81 190.85 138.58 90.51 46.23 5.37 (32.41) (67.38) (99.82) (129.96) $400.00 Project 2 $300.00 $200.00 NPV ($ millions) $100.00 Proje ct 1 $$(100.00) $(200.00) 0% 5% 128.59 103.59 78.59 53.59 28.59 3.59 (21.41) $ $ $ $ $ $ $ 15% 20% 25% Discount Rate Project 1 NPV Project 2 NPV $ $ $ $ $ $ $ 10% 158.73 121.23 83.73 46.23 8.73 (28.77) (66.27) $200.00 $150.00 $100.00 NPV ($ millions) $50.00 Project 1 $- Project 2 $(50.00) $(100.00) -20% -15% -10% -5% 0% 5% 10% Change in Capital Expenditures (%) 15% 20% roje ct 1 15% 20% 25% Project 1 2 5% 10% ditures (%) 15% 20%