5-96 Florida Power and Light has committed to building a solar power plant. JoAn
ID: 2772242 • Letter: 5
Question
5-96 Florida Power and Light has committed to building a solar power plant. JoAnne, an IE working for FPL, has been tasked with evaluating the three current designs. FPL uses an interest rate of 10% and a 20-year horizon.
Design 1: Flat Solar Panels
A field of “flat solar panels angled to best catch the sun will yield 2.6 MW of power and will cost $87 million initially with the first year operating costs at $2 million, growing $250,000 annually. It will produce electricity worth $6.9 million the first year and will increase by 8% each year thereafter.
Design 2: Mechanized Solar Panels
A field of mechanized solar panels rotates from side to side so that they are always positioned parallel to the sun’s rays, maximizing the production of electricity. This design will yield 3.1 MW of power and will cost $101 million initially with first year operating costs at $2.3 million, growing $300,000 annually. It will produce electricity worth $8.8 million the first year and will increase 8% each year thereafter.
Design 3: Solar Collector Field
This design uses a field of mirrors to focus the sun’s rays onto a boiler mounted in a tower. The boiler then produces steam and generates electricity the same way a coal-fired plant operates. This system will yield 3.3 MW of power and will cost $91 million initially with first-year operating costs at $3 million growing at $350,000 annually. It will produce electricity worth $9.7 million the first year and will increase 8% each year thereafter.
Explanation / Answer
Solution :
The design that would be the most economically smart for FPL to build is found out by calculating the net present value of the three current designs .
Design 1: Flat Solar Panels
Net present value = - $ 87,000,000 + $75,097,699.59
Net present value = - $11,902,300.41
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Design 2: Mechanized Solar Panels
Net present value = - $101,000,000 + $98,955,234.80
NPV = - $2,044,765.20
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Design 3: Solar Collector Field
Net present value = - $91,000,000 + $104,048,423.52
NPV = $13,048,423.52
Hence Design 3 is recommended as it would be the most economically smart for FPL to build because the Net present value is positive .
Year cash outflows Cash inflows Net cash flows = Cash inflows - cash outflows Present value of Net cash flow 0 $87,000,000 0 1 $2,000,000 $6,900,000 $4,900,000 $4,454,545.45 2 $2,250,000 $7,452,000.00 $5,202,000 $4,299,173.55 3 $2,500,000 $8,048,160.00 $5,548,160 $4,168,414.73 4 $2,750,000 $8,692,012.80 $5,942,013 $4,058,474.69 5 $3,000,000 $9,387,373.82 $6,387,374 $3,966,056.61 6 $3,250,000 $10,138,363.73 $6,888,364 $3,888,301.75 7 $3,500,000 $10,949,432.83 $7,449,433 $3,822,736.93 8 $3,750,000 $11,825,387.45 $8,075,387 $3,767,227.85 9 $4,000,000 $12,771,418.45 $8,771,418 $3,719,937.67 10 $4,250,000 $13,793,131.93 $9,543,132 $3,679,290.47 11 $4,500,000 $14,896,582.48 $10,396,582 $3,643,938.74 12 $4,750,000 $16,088,309.08 $11,338,309 $3,612,734.69 13 $5,000,000 $17,375,373.81 $12,375,374 $3,584,704.98 14 $5,250,000 $18,765,403.71 $13,515,404 $3,559,028.21 15 $5,500,000 $20,266,636.01 $14,766,636 $3,535,015.26 16 $5,750,000 $21,887,966.89 $16,137,967 $3,512,091.79 17 $6,000,000 $23,639,004.24 $17,639,004 $3,489,782.95 18 $6,250,000 $25,530,124.58 $19,280,125 $3,467,699.88 19 $6,500,000 $27,572,534.54 $21,072,535 $3,445,527.78 20 $6,750,000 $29,778,337.31 $23,028,337 $3,423,015.60 $75,097,699.59Related Questions
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