Question

Southern ontario is planning to build a new solar power station the project will start in 2023 and is planned to take 3 years at a cost of $150 million per year. After project completion, the cost of maintenance and repairs is expected to be $10 million for the first year, and to increase by $100,000 per year thereafter. The salvage value of the station at the end of year 2060 is estimated to be $30 million. The new solar station is expected to save the city $45 million per year. Consider the present to be the end of 2016/beginning of 2017 and the interes rate to be 6%

Draw the cash flow for this project from present till end of 2060, Whats is the present and future worth of the project? Is it a good invesment for the city to make?

Answer 1

Computaion of NPV ( in $ Million)
	Amount	Time	PVF @6%	Cumm Present Value
Present Value of Cash Outflow
Investment in project in Year 2023	$150.00	6	0.704	$105.60
Investment in project in Year 2024	$150.00	7	0.665	$99.75
Investment in project in Year 2025	$150.00	8	0.627	$94.05
Salvage value of at the end of 2060	-$30.00	44	0.077	-$2.31
Total PVCO (A)				$297.09
Prevesnt Value of Annual Cash Inflow
Net Annual Cash Flow As mentioned in net cash flow Statement	$630.00	10-44		$202.25
total PVCI (B)				$202.25
NPV(B-A)				-$94.84
	Statement Showing Net Cash Flow ( in $ Million)
			Expected saving			Maintainance Cost			Net Cash Flow
	Year	PVF	Amount	PV		Amount	PV		Amount	Amount
	2026	0.55839	45	25.13		10	5.58		35	19.54
	2027	0.52679	45	23.71		11	5.79		34	17.91
	2028	0.49697	45	22.36		12	5.96		33	16.40
	2029	0.46884	45	21.10		13	6.09		32	15.00
	2030	0.4423	45	19.90		14	6.19		31	13.71
	2031	0.41727	45	18.78		15	6.26		30	12.52
	2032	0.39365	45	17.71		16	6.30		29	11.42
	2033	0.37136	45	16.71		17	6.31		28	10.40
	2034	0.35034	45	15.77		18	6.31		27	9.46
	2035	0.33051	45	14.87		19	6.28		26	8.59
	2036	0.3118	45	14.03		20	6.24		25	7.80
	2037	0.29416	45	13.24		21	6.18		24	7.06
	2038	0.27751	45	12.49		22	6.11		23	6.38
	2039	0.2618	45	11.78		23	6.02		22	5.76
	2040	0.24698	45	11.11		24	5.93		21	5.19
	2041	0.233	45	10.48		25	5.82		20	4.66
	2042	0.21981	45	9.89		26	5.72		19	4.18
	2043	0.20737	45	9.33		27	5.60		18	3.73
	2044	0.19563	45	8.80		28	5.48		17	3.33
	2045	0.18456	45	8.31		29	5.35		16	2.95
	2046	0.17411	45	7.83		30	5.22		15	2.61
	2047	0.16425	45	7.39		31	5.09		14	2.30
	2048	0.15496	45	6.97		32	4.96		13	2.01
	2049	0.14619	45	6.58		33	4.82		12	1.75
	2050	0.13791	45	6.21		34	4.69		11	1.52
	2051	0.13011	45	5.85		35	4.55		10	1.30
	2052	0.12274	45	5.52		36	4.42		9	1.10
	2053	0.11579	45	5.21		37	4.28		8	0.93
	2054	0.10924	45	4.92		38	4.15		7	0.76
	2055	0.10306	45	4.64		39	4.02		6	0.62
	2056	0.09722	45	4.37		40	3.89		5	0.49
	2057	0.09172	45	4.13		41	3.76		4	0.37
	2058	0.08653	45	3.89		42	3.63		3	0.26
	2059	0.08163	45	3.67		43	3.51		2	0.16
	2060	0.07701	45	3.47		44	3.39		1	0.08
		Total	1575	386.1670385		945	183.91776		630	202.24927
It is not good ti invest in the same proposal