Calculate the annual operating expenses

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Reference no: EM133201478

Assignment:

Part I: Deterministic Economic Study

1. Calculate the annual operating expenses. Most often, the capital value method is used for assessing the profitability of investments, but in the solution of Question 2, the annuity method should be used.

2. Transcribe all deposits and withdrawals to a constant annuity over the life of the investment:

3. Calculate the investment's present value, based on your answer to Question 2.

4. In 2016, the Ministries of Energy entered into an energy saving agreement with the Energy companies, which obliges energy companies to implement energy savings. Therefore, a company that carries out energy savings can sell the first year's energy savings to an energy company, as this helps the energy company to meet the agreed-upon energy saving goals. The Energy Saving Agreement applies for a 4-year period beginning January 1, 2017. It is assumed here that the energy savings can be sold to an energy company for 300 USD /MWh. Furthermore, it is assumed that the contribution from this is attributable to the end of the first year. If the price of electricity - as given in

Question 2 - is 1.10 USD/kWh, how much will the sale of energy savings then increase the amount of deposit annuity calculated during the solution of Question 2?

Part II: Sensitivity Analysis

1. Preform sensitivity analysis of a measure of merit (net annual worth and net present worth) to variation, over a range of ±100% of some selected input cash flow parameters and graph the results. This analysis is intended to tackle the impact of errors in estimating various values of the input parameters. The Dominion company has decided to conduct the sensitivity analysis with the aim of providing the higher management with information concerning the risk behavior on investment economic effectiveness due to possible uncertainty for some critical input cash flow parameters. The selected parameters for the analysis are:

a) Discount rate: some reports anticipate projected increase on lending interest rate in the near future

b) Expected life of the project

c) Electricity price

d) Plot the one-at-a-time where x = percent deviation from most likely value and y= Annual worth (dollar)

e) Plot the one-at-a-time where x = percent deviation from most likely value and y= Present worth (dollar).

2. Define the most sensitive parameters and perform a muitiarmeter sensitivity analysis for this problem. Draw a diagram to illustrate your answer where x= change in parameter I, and y= change in parameter II. (Hint: two graphs for net annual worth and net present worth).

Attachment:- Risk Analysis for Capital Investment.rar

Reference no: EM133201478

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