Charges customers for their wind generated electricity

Assignment Help Financial Management

Reference no: EM13731912

Viento Windmills is a utility that charges customers for their wind generated electricity. With their current technology, they earn a total of $65 million each year to pay out to their 3 million shareholders. While their geographic footprint is fixed and we can't expect the climate to get progressively windier over time, they do have an opportunity to invest in technology that will more efficiently extract the wind energy and thus produce more megawatts to sell to customers. A one-time investment one year from now (t = 1) of $29 million for a state of the art lubricant system for the windmills will lead to extra cash flows that stay constant at $19 million per year starting the following year (t = 2) and lasting forever. If Viento plans to make the investment and cost of equity capital (the discount rate for equity) is 8.5%, calculate the increase or decrease in the share price of Viento as a result of this decision. Draw time line to understand what is going on.

Reference no: EM13731912

Questions Cloud

What is the bond price if priced with the assumption : Callable bond. Corso Books has just sold a callable bond. It is a thirty year semi-annual bond with an annual coupon rate of 6% and $1,000 par value. Investors, however, can call the bond starting at the end of 10 years. If the yield to call on this ..

Deciding whether to add bard publishing to your portfolio : You are deciding whether to add Bard Publishing to your portfolio, but you are concerned about your projection for their growth rate. Bard's cost of equity capital (the discount rate for equity) is known to be 8% and they just paid a dividend of $4.7..

Preparing for their initial public equity offering : Locked-In Real Estate (LIRE) is preparing for their Initial Public Equity Offering (IPO). With its holdings consisting of rent controlled apartments, and no plans for expanding, LIRE plans to payout all of its earnings as dividends. These dividends a..

Process of bidding construction contracts : Dixie Construction is a young firm that is in the process of bidding (and winning) construction contracts. While they are unable to pay any dividends today, once the contracts are awarded and their work begins in earnest, they expect to be able to st..

Charges customers for their wind generated electricity : Viento Windmills is a utility that charges customers for their wind generated electricity. With their current technology, they earn a total of $65 million each year to pay out to their 3 million shareholders.

Using the shortest life planning horizon : When using the shortest life planning horizon (non LCM approach), what issue should you explicitly consider for alternatives whose cash flow profiles extend longer than the shortest life determination of salvage values for truncated cash flows the va..

What is the present equivalent cost of the investment : A machine at a bottling plant that has a first cost of $150,000, operating and maintenance costs of $17,500 per year, and an estimated net salvage value of $25,000 at the end of thirty years. Assume an interest rate of 8%. What is the present equiv..

Annual payments starting one year after the loan is made : You borrow $5,000 at 10% per year and will pay off the loan in 3 equal annual payments starting one year after the loan is made. The end-of-year payments are $2010.57. Which of the following is true for your payment at the end of year 2?

Determine the yield to investor : 3 Today, the one-year U.S. interest rate is 2%, while the one-year interest rate in Mexico is 6%. The spot rate of the Mexico peso (MXP) is $.08 the one-year forward rate of the MXP exhibits a 11% discount. Determine the yield (percentage return on i..

User Account

All Pages