Which depreciation method is preferable and why, Operation Management

Assignment Help:

1. Your firm is considering an investment in a wind farm. Assume that the farm will cost $1 million per MW of installed capacity. The plan under consideration would deploy 10 GE 1.5 MW. You are to assess the after-tax profitability of this plan. The wind farm will be placed in a Class 6 wind area, generating an estimated average of 8760 MWh per turbine per year. The price of energy produced is $0.067 per kwh and a production tax credit provide an additional $0.022 per kwh for the first 10 years. You can obtain a very low interest loan for your investment, with an effective interest rate of 2.5% that you will pay off over 30 years. Assume that transmission lines will be provided by a local utility at no cost. Operating expenditures are $10,000 per year, mostly for insurance and occasional maintenance. Your corporate tax rate is 30%. Discount real profits or losses at a rate of 10%. For the three options below, generate an annual nominal cash flow, annual before tax profits, annual after-tax profits, and net present value after tax of the windfarm for the first 20 years (using traditional NPV calculations-do not worry about WACC), assuming zero salvage value and that you have no other deductions or credits for taxation except interest and-

1. The wind turbines can be straight-line depreciated over 15 years.

2. The wind turbines can be MACRS depreciated at 300% declining balance over 6 years, switching to straight-line depreciation on the adjusted basis (as in 4) if ever that provides a greater deduction.

3. The wind turbines can be depreciated 100% in the first year.

Is the wind farm profitable in NPV terms under any of these scenarios after 20 years? Which depreciation method is preferable? Why?


Related Discussions:- Which depreciation method is preferable and why

Explain company follow a plan of concentrated manufacturing, You are the CE...

You are the CEO of a chemical company that produces sulphuric acid, an acid that is used as an input in a wide variety of industrial products. The company has a good reputation in

Explain what is the minimum sales quantity, Ski Boards, Inc., wants to ente...

Ski Boards, Inc., wants to enter the market quickly with a new finish on its ski boards. It has two choices: (A) make major modifications at a fixed cost of $26,000, or (B) purchas

Cost leadership in fast-food chains, Within the food service industry, find...

Within the food service industry, find examples of firms that have sustained competitive advantage by competing on the basis of (1) Cost leadership, (2) Response, and (3) different

Explain health care reform bill decision making essay, Health Care Reform B...

Health Care Reform Bill Decision Making Essay Review websites for critical decision making in relation to the Health Care Bill of 2010. What do you believe the decision making p

Describe worker adjustment and retraining notification act, Outline the pro...

Outline the provisions of the Worker Adjustment and Retraining Notification Act (WARN) of 1988 stating its rules, liabilities, and loopholes. Discuss the reasons why this act was c

Perseverance and job related knowledge, (Emotional intelligence; a key fact...

(Emotional intelligence; a key factor to success) I want a 20 question survey for this topic, based on these 5 factors Ethic and integrity, Leadership, Perseverance, Job related kn

Explain cause and effect diagram and pareto analysis, What are the advantag...

What are the advantages and disadvantages of using a Cause and Effect diagram and Pareto Analysis in terms of analyzing quality issues? Respond to at least two of your classmates'

Explain team to assist in the repair of equipment, Fred Flowers works for A...

Fred Flowers works for Alabama Electric and is a resident of the State of Florida. Following a series of storms in the Northeast, Alabama Electric sent Fred to Virginia as part of

Focused improvement programmes - improving productivity, Focused Improvemen...

Focused Improvement Programmes - Improving Productivity Allan Lawlor (1985), Director of Action Learning Associates (ALA) suggests - based on his experiences in industry and

Explain advantages of matrix organization, Explain advantages of matrix org...

Explain advantages of matrix organization. Advantages of matrix organization (i)  Permitting better planning and control to meet deadline if effectively focuses resource

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd