Financial analysis for longreach regional council

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Reference no: EM131681975

Assignment - Financial Analysis & Decision Making

Context

Assignment introduced concepts around financial analysis, cost estimation and decision making criteria. An informed financial analysis is often a crucial decision making tool for the distribution of capital.

Your consulting firm has been requested to undertake a financial analysis for Longreach Regional Council to assist in their financial decision making for a potential move "off the grid".

Background Information

Longreach has a population of 3,300. The main industry is cattle and sheep grazing, closely followed by tourism. The town consumes approximately 8 gigawatt hours (GWh) of energy per annum and has a peak load of 3 megawatts (MW) which occurs between 6pm and 8pm each day.

Given their small power draw, increasing electricity prices and more frequent outages, Longreach Regional Council is hoping to move "off the grid" in the near future. The Longreach Regional Council is considering two proposals for ongoing provision of its energy without relying on the conventional electricity grid:

1. A conventional diesel fired power station.

2. A fixed panel solar photovoltaic (PV) array in combination with a Tesla energy storage system.

The investment decision is being made in November 2017. The life of the asset is expected to be 40 years (i.e. ending 40 years after the asset becomes operational). Your recommendation should be tied to the net present value (NPV) and internal rate of return (IRR) assuming that the nominal discount rate is 7%. Electricity is sold at a rate of 24 cents per kWh in 2017. The corporate tax rate is constant at 30%. Inflation is assumed to be constant at 2%. NPV should be in real terms.

Task -

Your consulting firm must develop a Financial Assessment. This Financial Assessment must:

include a Cover Letter addressed to the Client or project manager;
contain an Executive Summary (1 page);
provide a brief introduction to the two proposals (1 page);
include a methodology outlining your approach to the Financial Assessment process (1 page);
include a brief description of your estimation of the costs of each proposal (2 pages);
contain a Conclusion making clear the recommendation given the two options (1 page); and
include a Microsoft Excel financial spreadsheet to support your recommendations.

The Financial Assessment should have a maximum length of 6 pages, not including the cover pages or the Table of Contents.

Proposal A - Conventional Diesel Fired Power Station

In your Financial Assessment you must consider the following parameters for Proposal A:

capital cost of building the conventional diesel fired power station (approximately $600,000 per MW installed, including all voltage conversion systems);
capital cost of installing power lines from the plant to Longreach (~5km away);
consumption and cost of diesel to operate the plant;
time required to build the plant; and
provisions for rehabilitation and closure of the plant (which lies on 10 acres of flat grazing ground).

Proposal B - Fixed Panel Solar Voltaic Array

In your Financial Assessment you must consider the following parameters for Proposal B:

an appropriate size for the fixed panel solar voltaic array and battery system (which is assumed to include all voltage conversion systems);
capital cost of building the fixed panel solar voltaic array and battery system;
capital cost of installing powerlines from the array to Longreach (~6km away);
ongoing maintenance of the array and battery system; and
provisions for rehabilitation and closure of the array and battery system (which lies on flat grazing ground, the area of which is defined by the size of the array chosen).

Further Guidance - Further guidance is provided below:

Keep paragraphs short, and ensure that each sentence has a point and reads easily.

Create a logical Excel workbook with units and assumptions communicated clearly and consistently.

Consider investment risk and uncertainty in your analysis.

Any academic referencing method is acceptable, but it must be applied consistently.

Attachment:- Assignment Files.rar

Reference no: EM131681975

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Reviews

len1681975

10/16/2017 5:21:15 AM

Attached are the links and a spreadsheet client found online as research information with the Assignment file. The Financial Assessment should have a maximum length of 6 pages, not including the cover pages or the Table of Contents. This task is assessing your ability to write a professional report, to think critically about the financial analysis of major projects and to broaden your knowledge base to consider business decisions. Your Financial Assessment should be robust, making assumptions for all major elements and justifying decisions for your methodology and output.

len1681975

10/16/2017 5:21:07 AM

Clear presentation is important in the Financial Assessment. While an analysis may be perfect, if it is not communicated well it cannot be used for full effect in decision making. Do not confuse the brevity of the assessment with the amount of thought required. Spelling, punctuation, grammar and formatting errors will be heavily penalised. It is recommended that you proofread your work thoroughly and ensure it is readable, logical, free from errors and consistently formatted (e.g. dot point formatting is consistent). You must submit your Financial as one ZIP file through Turn-It-In by 4pm on Friday 27 October 2017 including one PDF and one XLSX file. Your file naming convention must follow WX-Y.Assignment6.zip. For example, Workshop 4 Group J would name their submission file W4-J.Assignment6.zip.

len1681975

10/16/2017 5:21:00 AM

Report has a comprehensive and logical Table of Contents covering all relevant issues. Report adopts clear and consistent formatting with zero spelling, grammar, punctuation or formatting errors. Writing is elegant, concise and relevant. Excellent use of charts, tables and dot points to display information. Methodology is comprehensive, showing deep understanding of contextual factors and project pressures. Information is correct and exact to the necessary detail and used effectively to emphasise key points.

len1681975

10/16/2017 5:20:54 AM

Correct application of information on capital requirements, with critique on of level of realism. Research supports all assumptions for both cases, where adopted values are reasonable and realistic. Economic factors applied correctly, with no errors in formulas. Sensitivity analysis applied correctly. Outcomes (NPV, IRR, decision) reasonable, supporting a clear decision with clear justification. Notes on next steps included with key points of risk identified. Conclusions are entirely aligned to the financial analysis. Nuances and major risks are addressed. Sensitivity analysis is included to assess potential scenario movements. Demonstrates a deep understanding of the issues and requirements of the reader.

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