Wind turbine capital investment analysis Central Plains Power Company is considering an investment in wind farm technology to reduce natural gas use. Initial installation costs are expected to be $1,200 per kilowatt-hour of capacity. The wind turbine has a capacity of generating 2 megawatts per hour. A kilowatt-hour is 1,000 watts generated per hour, and a megawatt hour is 1,000 kilowatts generated per hour. Annual operating information related to the wind turbine project was developed as follows: Wind capacity factor   25 %* Operating cost per wind turbine megawatt-hour   $10   Variable operating, fuel, and maintenance costs per natural gas megawatt-hour   $95   Days per year   365     *A factor that measures the reduction from full capacity due to the variability of wind a. Determine the initial investment cost of the wind turbine. b. Determine the annual cost savings from the wind turbine in replacing natural gas generation. Round to nearest whole dollar. c. Determine the net present value of the project assuming a 15-year life and 12% minimum rate of return. (Use the present value tables in Appendix A.)

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Wind turbine capital investment analysis

Central Plains Power Company is considering an investment in wind farm technology to reduce natural gas use. Initial installation costs are expected to be $1,200 per kilowatt-hour of capacity. The wind turbine has a capacity of generating 2 megawatts per hour. A kilowatt-hour is 1,000 watts generated per hour, and a megawatt hour is 1,000 kilowatts generated per hour.

Annual operating information related to the wind turbine project was developed as follows:

Wind capacity factor   25 %*
Operating cost per wind turbine megawatt-hour   $10  
Variable operating, fuel, and maintenance costs per natural gas megawatt-hour   $95  
Days per year   365  

 

*A factor that measures the reduction from full capacity due to the variability of wind

a. Determine the initial investment cost of the wind turbine.

b. Determine the annual cost savings from the wind turbine in replacing natural gas generation. Round to nearest whole dollar.

c. Determine the net present value of the project assuming a 15-year life and 12% minimum rate of return. (Use the present value tables in Appendix A.)

Present Value of Ordinary Annulty of $1 per Perlod
Present Value of Ordinary Annulty of $1 per Perlod
Periods
4.0%
4.5%
5%
5.5%
6%
6.5%
7%
Periods
8%
9%
10%
11%
12%
13%
14%
1
0.96154
0.95694
0.95238
0.94787
0.94340
0.93897
0.93458
1
0.92593
0.91743
0.90909
0.90090
0.89286
0.88496
0.87719
1.85941
2.72325
2
1.88609
1.87267
1.84632
1.83339
1.82063
1.80802
2
1.78326
1.75911
1.73554
1.71252
1.69005
1.66810
1.64666
2.77509
3.62990
2.74896
3.58753
2.57710
3.31213
3.99271
2.32163
2.91371
3.43308
3
2.69793
2.67301
2.64848
2.62432
3
2.53129
2.48685
2.44371
2.40183
2.36115
4
3.54595
3.50515
3.46511
342580
3.38721
4
3.23972
3.16987
3.10245
3.03735
2.97447
5
4.45182
4.38998
4.32948
4.27028
4.21236
4.15568
4.10020
5
3.88965
3.79079
3.69590
3.60478
3.51723
6
5.24214
5.15787
5.07569
4.99553
4.91732
4.84101
4.76654
4.62288
4.48592
4.35526
4.23054
4.11141
3.99755
3.88867
7
6.00205
5.89270
5.78637
5.68297
5.58238
5.48452
5.38929
7
5.20637
5.03295
4.86842
4.71220
4.56376
4.42261
4.28830
6.73274
6.59589
6.46321
6.33457
6.20979
6.08875
5.97130
8
5.74664
5.53482
5.33493
5.14612
4.96764
4.79677
4.63886
7.43533
7.26879
7.10782
6.95220
6.80169
6.65610
6.51523
9
6.24689
5.99525
5.75902
5.53705
5.32825
5.13166
4.94637
10
8.11090
7.91272
7.72173
7.53763
7.36009
7.18883
7.02358
10
6.71008
6.41766
6.14457
5.88923
5.65022
5.42624
5.21612
8.09254
8.61852
9.11708
5.93770
6.19437
5.45273
5.66029
11
8.76048
8.52892
8.30641
7.88687
7.68904
7.49867
11
7.13896
6.80519
6.49506
6.20652
5.68694
8.86325
9.39357
7.94269
8.35765
9.11858
9.68285
10.22283
10.73955
12
9.38507
8.38384
8.15873
12
7.53608
7.16073
6.81369
6.49236
5.91765
7.90378
8.22424
6.42355
6.62817
6.12181
6.30249
6.46238
13
9.98565
8.85268
8.59974
13
7.48690
7.10336
6.74987
5.84236
10.56312
11.11839
8.74547
9.10791
14
9.89864
9.58965
9.29498
9.01384
14
7.78615
7.36669
6.96187
6.00207
15
10.37966
10.03758
9.71225
9.40267
15
8.55948
8.06069
7.60608
7.19087
6.81086
6.14217
11.65230
12.16567
11.23402
11.70719
9.44665
9.76322
10.05909
10.33560
16
10.83777
10.46216
10.10590
9.76776
16
8.85137
8.31256
7.82371
7.37916
6.97399
6.60388
6.26506
17
11.27407
10.86461
10.47726
10.11058
17
9.12164
8.54363
8.02155
7.54879
7.11963
6.72909
6.37286
11.24607
11.60765
18
12.65930
12.15999
11.68959
10.82760
10.43247
18
9.37189
8.75563
8.20141
7.70162
7.24967
6.83991
6.46742
19
13.13394
12.59329
12.08532
11.15812
10.73471
19
9.60360
8.95011
8.36492
7.83929
7.36578
6.93797
6.55037
20
13.59033
13.00794
12.46221
11.95038
11.46992
11.01851
10.59401
20
9.81815
9.12855
8.51356
7.96333
7.46944
7.02475
6.62313
21
14.02916
13.40472
12.82115
12.27524
11.76408
11.28498
10.83553
21
10.01680
9.29224
8.64869
8.07507
7.56200
7.10155
6.68696
22
14.45112
13.78442
13.16300
12.58317
12.04158
11.53520
11.06124
22
10.20074
9.44243
8.77154
8.17574
7.64465
7.16951
6.74294
23
14.85684
14.14777
13.48857
12.87504
12.30338
11.77014
11.27219
23
10.37106
9.58021
8.88322
8.26643
7.71843
7,22966
6.79206
15.24696
15.62208
14.49548
14.82821
13.79864
14.09394
13.15170
13.41393
11.99074
12.19788
11.46933
11.65358
24
12.55036
24
10.52876
9.70661
8.98474
8.34814
7.78432
7.28288
6.83514
25
12.78336
25
10.67478
9.82258
9.07704
8.42174
7.84314
7.32998
6.87293
26
15.98277
15.14661
14.37519
13.66250
13.00317
12.39237
11.82578
26
10.80998
9.92897
9.16095
8.48806
7.89566
7.37167
6.90608
10.93516
11.05108
27
16.32959
15.45130
14.64303
13.89810
13.21053
12.57500
11.98671
27
10.02658
9.23722
8.54780
7.94255
7.40856
6.93515
14.12142
14.33310
14.53375
28
16.66306
15.74287
14.89813
13.40616
12.74648
12.13711
28
10.11613
9.30657
8.60162
7.98442
7.44120
6.96066
29
16.98371
16.02189
15.14107
13.59072
12.90749
12.27767
29
11.15841
10.19828
9.36961
8.65011
8.02181
7.47009
6.98304
30
17.29203
16.28889
15.37245
13.76483
13.05868
12.40904
30
11.25778
10.27365
9.42691
8.055 18
8.69379
7.49565
7.00266
16.54439
16.78889
17.02286
14.72393
14.90420
13.20063
13.33393
1345909
13.57661
13.68696
12.53181
12.64656
17.58849
13.92909
14.08404
14.23023
14.36814
7.51828
7.53830
7.55602
31
15.59281
31
11.34980
10.34280
9.47901
8.73315
8.08499
7.01988
15.80268
16.00255
32
17.87355
32
11.43500
10.40624
9.52638
8.76860
8.11159
7.03498
18.14765
18.41120
18.66461
12.75379
12.85401
10.46444
10.51784
33
15.07507
33
11.51389
9.56043
8.80054
8.13535
7.04823
15.23703
15.39055
8.15656
8.17550
34
17.24676
16.19290
34
11.58693
9.60857
8.82932
7.57170
7.05985
35
17.46101
16.37419
14.49825
12.94767
35
11.65457
10.56682
9.64416
8.85524
7.58557
7.07005
40
19.79277
18.40158
17.15909
16.04612
15.04630
14.14553
13.33171
40
11.92461
10.75736
9.77905
8.95105
8.24378
7.63438
7.10504
45
20.72004
19.15635
17.77407
16.54773
15.45583
14.48023
13.60552
45
12.10840
10.88120
9.86281
9.00791
8.28252
7.66086
7.12322
50
21.48218
19.76201
18.25593
16.93152
15.76186
14.72452
13.80075
50
12.23348
10.96168
9.91481
9.04165
8.30450
7.67524
7.13266
Transcribed Image Text:Present Value of Ordinary Annulty of $1 per Perlod Present Value of Ordinary Annulty of $1 per Perlod Periods 4.0% 4.5% 5% 5.5% 6% 6.5% 7% Periods 8% 9% 10% 11% 12% 13% 14% 1 0.96154 0.95694 0.95238 0.94787 0.94340 0.93897 0.93458 1 0.92593 0.91743 0.90909 0.90090 0.89286 0.88496 0.87719 1.85941 2.72325 2 1.88609 1.87267 1.84632 1.83339 1.82063 1.80802 2 1.78326 1.75911 1.73554 1.71252 1.69005 1.66810 1.64666 2.77509 3.62990 2.74896 3.58753 2.57710 3.31213 3.99271 2.32163 2.91371 3.43308 3 2.69793 2.67301 2.64848 2.62432 3 2.53129 2.48685 2.44371 2.40183 2.36115 4 3.54595 3.50515 3.46511 342580 3.38721 4 3.23972 3.16987 3.10245 3.03735 2.97447 5 4.45182 4.38998 4.32948 4.27028 4.21236 4.15568 4.10020 5 3.88965 3.79079 3.69590 3.60478 3.51723 6 5.24214 5.15787 5.07569 4.99553 4.91732 4.84101 4.76654 4.62288 4.48592 4.35526 4.23054 4.11141 3.99755 3.88867 7 6.00205 5.89270 5.78637 5.68297 5.58238 5.48452 5.38929 7 5.20637 5.03295 4.86842 4.71220 4.56376 4.42261 4.28830 6.73274 6.59589 6.46321 6.33457 6.20979 6.08875 5.97130 8 5.74664 5.53482 5.33493 5.14612 4.96764 4.79677 4.63886 7.43533 7.26879 7.10782 6.95220 6.80169 6.65610 6.51523 9 6.24689 5.99525 5.75902 5.53705 5.32825 5.13166 4.94637 10 8.11090 7.91272 7.72173 7.53763 7.36009 7.18883 7.02358 10 6.71008 6.41766 6.14457 5.88923 5.65022 5.42624 5.21612 8.09254 8.61852 9.11708 5.93770 6.19437 5.45273 5.66029 11 8.76048 8.52892 8.30641 7.88687 7.68904 7.49867 11 7.13896 6.80519 6.49506 6.20652 5.68694 8.86325 9.39357 7.94269 8.35765 9.11858 9.68285 10.22283 10.73955 12 9.38507 8.38384 8.15873 12 7.53608 7.16073 6.81369 6.49236 5.91765 7.90378 8.22424 6.42355 6.62817 6.12181 6.30249 6.46238 13 9.98565 8.85268 8.59974 13 7.48690 7.10336 6.74987 5.84236 10.56312 11.11839 8.74547 9.10791 14 9.89864 9.58965 9.29498 9.01384 14 7.78615 7.36669 6.96187 6.00207 15 10.37966 10.03758 9.71225 9.40267 15 8.55948 8.06069 7.60608 7.19087 6.81086 6.14217 11.65230 12.16567 11.23402 11.70719 9.44665 9.76322 10.05909 10.33560 16 10.83777 10.46216 10.10590 9.76776 16 8.85137 8.31256 7.82371 7.37916 6.97399 6.60388 6.26506 17 11.27407 10.86461 10.47726 10.11058 17 9.12164 8.54363 8.02155 7.54879 7.11963 6.72909 6.37286 11.24607 11.60765 18 12.65930 12.15999 11.68959 10.82760 10.43247 18 9.37189 8.75563 8.20141 7.70162 7.24967 6.83991 6.46742 19 13.13394 12.59329 12.08532 11.15812 10.73471 19 9.60360 8.95011 8.36492 7.83929 7.36578 6.93797 6.55037 20 13.59033 13.00794 12.46221 11.95038 11.46992 11.01851 10.59401 20 9.81815 9.12855 8.51356 7.96333 7.46944 7.02475 6.62313 21 14.02916 13.40472 12.82115 12.27524 11.76408 11.28498 10.83553 21 10.01680 9.29224 8.64869 8.07507 7.56200 7.10155 6.68696 22 14.45112 13.78442 13.16300 12.58317 12.04158 11.53520 11.06124 22 10.20074 9.44243 8.77154 8.17574 7.64465 7.16951 6.74294 23 14.85684 14.14777 13.48857 12.87504 12.30338 11.77014 11.27219 23 10.37106 9.58021 8.88322 8.26643 7.71843 7,22966 6.79206 15.24696 15.62208 14.49548 14.82821 13.79864 14.09394 13.15170 13.41393 11.99074 12.19788 11.46933 11.65358 24 12.55036 24 10.52876 9.70661 8.98474 8.34814 7.78432 7.28288 6.83514 25 12.78336 25 10.67478 9.82258 9.07704 8.42174 7.84314 7.32998 6.87293 26 15.98277 15.14661 14.37519 13.66250 13.00317 12.39237 11.82578 26 10.80998 9.92897 9.16095 8.48806 7.89566 7.37167 6.90608 10.93516 11.05108 27 16.32959 15.45130 14.64303 13.89810 13.21053 12.57500 11.98671 27 10.02658 9.23722 8.54780 7.94255 7.40856 6.93515 14.12142 14.33310 14.53375 28 16.66306 15.74287 14.89813 13.40616 12.74648 12.13711 28 10.11613 9.30657 8.60162 7.98442 7.44120 6.96066 29 16.98371 16.02189 15.14107 13.59072 12.90749 12.27767 29 11.15841 10.19828 9.36961 8.65011 8.02181 7.47009 6.98304 30 17.29203 16.28889 15.37245 13.76483 13.05868 12.40904 30 11.25778 10.27365 9.42691 8.055 18 8.69379 7.49565 7.00266 16.54439 16.78889 17.02286 14.72393 14.90420 13.20063 13.33393 1345909 13.57661 13.68696 12.53181 12.64656 17.58849 13.92909 14.08404 14.23023 14.36814 7.51828 7.53830 7.55602 31 15.59281 31 11.34980 10.34280 9.47901 8.73315 8.08499 7.01988 15.80268 16.00255 32 17.87355 32 11.43500 10.40624 9.52638 8.76860 8.11159 7.03498 18.14765 18.41120 18.66461 12.75379 12.85401 10.46444 10.51784 33 15.07507 33 11.51389 9.56043 8.80054 8.13535 7.04823 15.23703 15.39055 8.15656 8.17550 34 17.24676 16.19290 34 11.58693 9.60857 8.82932 7.57170 7.05985 35 17.46101 16.37419 14.49825 12.94767 35 11.65457 10.56682 9.64416 8.85524 7.58557 7.07005 40 19.79277 18.40158 17.15909 16.04612 15.04630 14.14553 13.33171 40 11.92461 10.75736 9.77905 8.95105 8.24378 7.63438 7.10504 45 20.72004 19.15635 17.77407 16.54773 15.45583 14.48023 13.60552 45 12.10840 10.88120 9.86281 9.00791 8.28252 7.66086 7.12322 50 21.48218 19.76201 18.25593 16.93152 15.76186 14.72452 13.80075 50 12.23348 10.96168 9.91481 9.04165 8.30450 7.67524 7.13266
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