WindFarm Reno is considering the purchase of wind turbines at a cost of $100 million as...

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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 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? 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?

Answer rating: 100% (QA)

a To calculate the projects NPV we need to first calculate the annual cash flows Revenue 70 mW x 876... View the full answer