About the clean energy subsidy

Assignment Help Financial Management

Reference no: EM131550988

XL energy is considering a project to set up windmills next to the Stone Arch bridge. Setting up these windmills will cost $500 million upfront, but it will qualify the firm to receive a “clean energy subsidy” of an amount $60 million each year. In addition, it will reduce XL energy’s reliance on the market for coal and reduce cost of production by $15 million each year. In general the lifespan of windmills is 3 years at the end of which they will have to be dismantled and sold for scrap for 15 percent of their initial cost. The subsidies arrive at the beginning of every year. All estimates of avoided costs are made assuming that they occur at the beginning of the year. The nominal discount rate through the whole period is 8 percent and the rate of inflation is 4 percent. Should XL energy invest in this project?

Reference no: EM131550988

Questions Cloud

Basis for pricing : Determine whether each example is based on cost-plus pricing, markup pricing, demand-based pricing, or competition-based pricing.

Differential and new-product pricing : Determine the type of differential or new-product pricing used as the pricing strategy.

What is the value of a share of the firm : Assuming the requuire rate of return of 122 % what is the value of a share of the firm?

About price acceptability : What does this exercise tell you about price acceptability?

About the clean energy subsidy : it will qualify the firm to receive a “clean energy subsidy” of an amount $60 million each year.

Dissatisfied with one of the companies in your portfolio : You are a fund manager and are dissatisfied with one of the companies in your portfolio.

What is company target debt-equity ratio : The tax rate is 38 percent. What is the company's target debt-equity ratio?

What is project payback period : A project with an initial outlay of $3,000 results in after tax cash flows of $500 after each of the next 10 years. What is the project's payback period?

Relationship between market-wide risk and market-wide return : The annualized volatility is sqr(252) times the daily volatility. Why? What is the relationship between market-wide risk and market-wide returns?

User Account

All Pages