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

Activities to a subsidiary in another country, Transferring some part of an...

Transferring some part of an organisation's activities to a subsidiary in another country is an example of  offshoring.

Explain any trend and cycles or random variations, Year 1 2 3 4 5 6 7 8 9 1...

Year 1 2 3 4 5 6 7 8 9 10 11 Demand 7 9 5 9 13 8 12 13 9 11 7 a) Plot the above data on a graph. Do you observe any trend, cycles, or random variations? b) Starting in yea

Explain the role of the hrm professional, How do these policies and practic...

How do these policies and practices align with Apple, Inc.'s legal compliance standards? If alignment is not present, how does this affect the role of the HRM prof

What are the characteristics of just in time philosophy, What are the chara...

What are the characteristics of just in time philosophy? Characteristics of JIT philosophy: a. Closer relations along with suppliers maintained b. Smaller and extra fr

Explain safety stock would provide a stock out risk, The injection moulding...

The injection moulding department of a company uses an average of 30 gallons of special lubricant a day. The supply of the lubricant is replenished when the amount on hand is 170 g

Explain motivation, Explain Motivation. The factors leading mainly towa...

Explain Motivation. The factors leading mainly towards motivation are :- (i) Achievement - Personal satisfaction in job completion and problem solving. (ii) Advancement -

Procurement, 1. Can the Japanese system of Keiretsu be duplicated in other ...

1. Can the Japanese system of Keiretsu be duplicated in other countries?  2. How do you distinguish between procurement, logistics management, materials management and supply ch

How to develop an aggregate plan for product line, DAT, Inc, company needs ...

DAT, Inc, company needs to develop an aggregate plan for its product line. Relevant data are Production time: 1 hour per unit Average labor cost: $10/hour Workweek: 5 d

Calculate the economic order quantity, The Managing Director of Beauty Soap...

The Managing Director of Beauty Soaps Ltd just visited a soap manufacturing firm in Malaysia and he was immensely impressed by its raw materials stock management System. He wanted

Explain management efforts and employee involvement, The decline in union m...

The decline in union membership has been mainly attributed to what four factors? Answer (1) Change in economy, employee involvement, human resources practices, and government regul

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