You have been approached by a developer with South Carolina solar project. Your manager wants to understand how attractive S.C. market could be or not the particular opportunity is feasible and meets the company’s investment criteria:
The Following part is the information regarding the project:
Investment Date: 2014
Commercial Operation Date: 2015
Life of Plant: 20 years (assume no terminal value)
Depreciation Assumptions: 5-year straight line depreciation (assume no salvage value)
Production per-year: 50,000 MWh
Price (you get for each MWh you deliver): $150/MWh (Price will be escalating at the rate of CPI)
CPI: 2.5%
Capital Expenditure: $40,000,000 (Cost of the Plant)
Operating Expenses: Operating expenses (COGS) are 25% of EBITDA for year 1 and escalating each year at CPI.
Investment Tax Credit: South Carolina provides 3% investment tax credit on the initial investment.
Taxes: 35%
First find the operating cash flows, investment and depreciation then the cash flow summary in order to calculate. Use Excel.
Based on the information provided, please calculate the IRR and NPV based on the after-tax cash flows and discount rate is 8%. What is your assessment?