Concept explainers
(a)
Capital investment for sustainability:
Capital investment for sustainability refers to the investment which is earned maximum profit while attempting to preserve the environment, economy and future needs. There are some objectives in the capital investment sustainability as follows:
- Minimize resource waste and environmental degradation,
- Develop new sustainable markets,
- Reduce litigation risks, and
- Maintain an attractive and safe working environment.
Net present value method is the method which is used to compare the initial
The initial investment cost of the wind turbine.
(a)
Explanation of Solution
Calculation for the initial investment cost of the wind turbine is as follows:
For the capacity of wind turbine to generate kilowatt per hour refer the following working note.
Working Note:
Capacity of wind turbine = 2 mega watt hour
Hence, the initial investment cost of the wind turbine is $2,400,000.
(b)
The annual cost savings from the wind turbine.
(b)
Explanation of Solution
Calculation of the annual cost savings from the wind turbine is as follows:
For the wind turbine megawatt hour generated per year and megawatt hour cost savings using wind turbine refer the following working notes.
Working Note:
Capacity of wind turbine = 2 mega watt hour
Operating days per year = 90 days
Operating hours per day = 24
Calculation of Wind turbine generated per year.
Calculation of megawatt hour cost savings using wind turbine:
Hence the annual cost savings from the wind turbine is $367,200.
(c)
The net present value of the project assuming a 15 year life and 12% minimum
(c)
Explanation of Solution
Calculation of the net present value of the project is as follows:
CP Power Company | ||
Net Present Value of the Project | ||
Particulars | Amount In $ (except present value of annuity) | |
Annual net cash flow | 367,200 | |
Present value of annuity of $1 at 12% for 15 years (Appendix A) | 6.81086 | |
Present Value of annual net cash flow | 2,500,948 | |
Less: | Amount to be invested | -2,400,000 |
Annual net cash flow | 100,948 |
Table (1)
Hence, the net present value of the project is $100,948.
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Chapter 11 Solutions
Managerial Accounting, Loose-leaf Version
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