ISEM Power is considering the acquisition a local Waste-to-Energy plant which produces electricity for the energy market by burning wastes collected from the community. The investment will cost the company an initial cost of $32 million which will be funded by taking a 5-year bank loan at an interest rate of 10% per year. The loan will be repaid with 5 equal end-of-year payments. Annual profits from the sales of electricity generated by the plant to the power grid are estimated to be $4 million in year 1 to year 10, and $6 million in year 11 to year 20. All cash flows are assumed to occur at the end of each year. The plant has a useful life of 20 years with a salvage value of $1 million. The company MARR is 12%. (a) What is the annual repayment amount for the bank loan? (b) What is the Present Worth of the project? Is the project financially feasible? (c) What is the IRR of the project? (d) What is the MIRR of the project if the financing rate is 10% and the reinvestment rate is 12%? (e) What is the discounted pay-back period of the project?
ISEM Power is considering the acquisition a local Waste-to-Energy plant which produces electricity for the energy market by burning wastes collected from the community. The investment will cost the company an initial cost of $32 million which will be funded by taking a 5-year bank loan at an interest rate of 10% per year. The loan will be repaid with 5 equal end-of-year payments. Annual profits from the sales of electricity generated by the plant to the power grid are estimated to be $4 million in year 1 to year 10, and $6 million in year 11 to year 20. All cash flows are assumed to occur at the end of each year. The plant has a useful life of 20 years with a salvage value of $1 million. The company MARR is 12%.
(a) What is the annual repayment amount for the bank loan?
(b) What is the Present Worth of the project? Is the project financially feasible?
(c) What is the
(d) What is the MIRR of the project if the financing rate is 10% and the reinvestment rate is 12%?
(e) What is the discounted pay-back period of the project?
Step by step
Solved in 4 steps with 4 images
