Capital Budgeting Analysis: A Green Winter
1) Using pertinent information from the case text, prepare a capital budgeting analysis of the wind turbine project using the payback and net presentation value or internal rate of return models.
Costs for Wind Turbine include:
SEDs Fee - Grant ($157,000 - 15,000) $142000
Purchase and Installationn - Grant ($3,900,000 - $582,000) $3,318,000
· Loan for $3,300,000 for 10 years and 7.3 interest rate $465,935.76 per year (10 years)
· Cash $18,000
Insurance and Maintance Fee $75000 per year
Savings from installation of Wind Turbine:
2.3 million fewer kWh at $0.16 each $368,000 per year sale of excess electricity $161,000 per year
Purchase of tax credits $166,667 per year (10 years)
Tax Credit $46,000 per year (10 years)
Open Early to public $100,000 per year
Year 1 $140,731.24 Savings ($142,000 + $18,000 + $75,000 +$465,935.76 - $368,000 - $161,000 - $166,667 - 46,000 - 100,000)
Year 2 - Year 10 $300,731.24 * 9 = $2,706,581.16 Savings ($75,000 +$465,935.76 - $368,000 - $161,000 - $166,667 - 46,000 - 100,000)
Year 11 - Year 25 $554,000 *15 = $8,310,000 Savings ($75,000 - $368,000 - $161,000 - 100,000)
Total Savings for life of Wind Turbine is $11,157,312.40.
5) Using the results from 1 through 4 above, prepare a memo addressed to Brian Fairbank to present your feasibility study findings and make a recommendation as to whether the resort should proceed with the wind turbine project.
To: Brian Fairbank
From: SED Team 4
Date: September 23, 2012
Subject: Pros and Cons for the Installation of a Wind Trubine
Mr. Faibank,
The SED team has found many advanatages and disadvantages related to installing a wind turbine at Jimmy Peak Mountain Resort. Some of the disadvantages include being hazardous to the birds, inconsistant source of power and it produces noise pollution. The advantages to having a wind turbine would be savings in costs, it is the cleanest form of energy, and wind is free. Taking all of the above into
Costs for Wind Turbine include:
SEDs Fee - Grant ($157,000 - 15,000) $142000
Purchase and Installationn - Grant ($3,900,000 - $582,000) $3,318,000
· Loan for $3,300,000 for 10 years and 7.3 interest rate $465,935.76 per year (10 years)
· Cash $18,000
Insurance and Maintance Fee $75000 per year
Savings from installation of Wind Turbine:
2.3 million fewer kWh at $0.16 each $368,000 per year sale of excess electricity $161,000 per year
Purchase of tax credits $166,667 per year (10 years)
Tax Credit $46,000 per year (10 years)
Open Early to public $100,000 per year
Year 1 $140,731.24 Savings ($142,000 + $18,000 + $75,000 +$465,935.76 - $368,000 - $161,000 - $166,667 - 46,000 - 100,000)
Year 2 - Year 10 $300,731.24 * 9 = $2,706,581.16 Savings ($75,000 +$465,935.76 - $368,000 - $161,000 - $166,667 - 46,000 - 100,000)
Year 11 - Year 25 $554,000 *15 = $8,310,000 Savings ($75,000 - $368,000 - $161,000 - 100,000)
Total Savings for life of Wind Turbine is $11,157,312.40.
5) Using the results from 1 through 4 above, prepare a memo addressed to Brian Fairbank to present your feasibility study findings and make a recommendation as to whether the resort should proceed with the wind turbine project.
To: Brian Fairbank
From: SED Team 4
Date: September 23, 2012
Subject: Pros and Cons for the Installation of a Wind Trubine
Mr. Faibank,
The SED team has found many advanatages and disadvantages related to installing a wind turbine at Jimmy Peak Mountain Resort. Some of the disadvantages include being hazardous to the birds, inconsistant source of power and it produces noise pollution. The advantages to having a wind turbine would be savings in costs, it is the cleanest form of energy, and wind is free. Taking all of the above into