Renewable Energy Project Financial Plan Coursework

Renewable Energy Project Financial Plan - Coursework Example Duke Energy alongside the plan will be depended on a current purchase by Duke Energy (DUK) within the solar energy. The goal is to debate on the project’s decision and cost evaluation process. This plan will entail project cost of capital, cash flows, cash flow statement, approximation of capital in every hazard classification, risk class of assets, exhaustive financial features of the enterprise, as well as the validation debate of whether the project must be undertaken. Black Mountain Solar Project Duke Energy currently bought an Arizona solar farm investment from Solon Corporation. The Black Mountain Solar Project is a 10-Megawatt (MW) 40,000 solar panel renewable energy farm located in Mohave County, Arizona. Project Cash Flow The ensuing spreadsheet indicates the cash flows, net present value (NPV), as well as the internal rate of return (IRR) for the Solar Farm Project that Duke Energy is interested in purchasing. Calculations for the Project Cash Flow Period Cash Flows NPV $35,366.48 Dec-08 453,000.00 Dec-09 556,000.00 Dec-10 128,000.00 Dec-11 440,000.00 Dec-12 550,000.00 Dec-13 740,000.00 NPV at 15% rate for a period of five years is $ 35,366.48 Cost of Project Capital The phrase cost of project capital is usually misunderstood. For instance, it is not the company’s past cost of finances like a coupon settlement of present stocks. The essential cost is a chance cost. This refers to the rate by which investors may offer funds for the capital budget project under concern now† Emery, Finnerty, & Stowe, 2007). Cost of capital: = %debt*After Tax Cost Of Debt + %equity*Required Return On Equity After Tax Cost Of Debt = (1-TaxRate)*Required Return On Debt Required Return On Equity = Risk Free Rate + Beta*(Return On Market – Risk Free Rate) = (313.38 + 0.16)/ 21.56 = 14.72 = 15%. Project Cost Flow Project cash flow PVIF@ 15% P.V Year 1 2 3 4 5 556000 128000 440000 550,000 740,000 0.8696 0.7561 0.6575 0.5485 0.4360 483497 96781 289300 364825 480395 Less initial capital 372000 +NPV 1342798 IRR using 15% Years Cash flow PVIF@ 15% P.V 1 2 3 4 5 556000 128000 440000 550000 740000 0.8696 0.7561 0.6575 0.5485 0.4360 483497 96781 289300 364825 480395 1714998 Using 10% Years Cash flow PVIF@ 15% P.V 1 2 3 4 5 556000 128000 440000 550000 740000 0.8696 0.7561 0.6575 0.5485 0.4360 505459.6 105779.2 330572 402657.9 512475.6 1856944.3 Therefore IRR = x[Z/-c = w – r/x – 7] + r = z = w – r + r x - c x -7 = z = 15% - 10% + 10% 569810.8 72232.8 72232.8 z = 2849054 z = 2849054 72232.8 = 39.44 + 10% IRR = 49.44 Cash Flow Statement Years Ended December (In millions) 2011 CASH FLOWS OPERATING ACTIVITIES Net Income $ 2,235 Changes to settle net income to net cash offered by functioning activities Depreciation and amortization (including amortization of nuclear fuel) 2,026 Equity component of AFUDC (260) Gains on sales of other assets (19) Impairment of goodwill and other long-lived assets 335 Deferred income taxes 602 Equity in earnings of unconsolidated affiliates (160) Contributions to qualified pension plans (200) Accrued pension and other post-retirement benefit costs 104 (Increase) decrease in Net realized and unrealized mark-to-market and hedging transactions (48) Receivables 2 Inventory (247) Other current assets 185 Increase (decrease) in Accounts payable 41 Taxes accrued 27 Other current liabilities (254) Other assets 12 Other liabilities (188) Net cash provided by operating