A utility company in one of the western states is considering the addition of 50

Question

A utility company in one of the western states is considering the addition of 50 megawatts of generating capacity to meet expected demands for electrical energy by the year 2016. This assumes that brownouts will occur during high demand periods. The utility presently has 200 MW of installed capacity and generates an average of 1.2 billion kilowatt-hours annually maximum generation capability is 1.3 billion kw-hours. By the 2013, this reserve of 100,000,000 kw-hours will be used. The initial cost for the construction of the Hydroelectric dam for the power generation is 50 M. annual operating and maintenance cost is 1.5M.Project life is 35 years before a major rebuild is required.

Explanation / Answer

The requirements of the question aren't clear. However, as per the given facts the net present value of total outflow can be found assuming the required rate of return of 10%. Here is the answer:

Initial cost of construction = 50m Annual maintainance cost = 1.5m Cumulative present value factor for 35 years @ assumed rate of 10 % = 9.644 * See the present value cumulative table @ 10% for 35 years or use excel Present value of outflow= 14.466 m Total present value of outflow= 50 + 14.466 = 64.466 m

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