You are considering putting in a wind farm. The initial construction cost is $25,000,000. You receive a Federal tax credit (rebate) of 50% of the cost. Assume you pay the construction cost and receive the tax credits both at date 0. Across the 25 year expected life of the project, you forecast generating an average of 8,000,000 kWh of electricity each year at an average price of $0.113 per kWh. Assume no other incremental cash flows.

Part a: If your investors demand 3.6% annually to pay for the system, what is the NPV of the wind farm?

Part b: What average electricity price would leave you indifferent (financially) to purchasing the wind farm?

Answer rating: 100% (QA)

Part a Net Present Value NPV Calculation Step 1 Calculate the aftertax initial cost Initial cost 25000000 Federal tax credit rebate 50 Tax credit amou... View the full answer