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 critical path consists of only five activities, You are working on ...

You are working on a project that has 12 activities. You determine that the critical path consists of only five activities. You then compute the variances for the five critical pat

Explain generally speaking and work packages, Generally speaking, work pack...

Generally speaking, work packages: Answer Are assigned to one functional unit Are not assigned to one functional unit Must be assigned to two or more functional units

Describe sustainable competitive advantage, Explain the following terms in ...

Explain the following terms in your own words and give specific, real life examples to illustrate your understanding of the term: 1. Tangible versus intangible resources 2. Core co

Explain how can the hrm professional be prepared to deal, How can the HRM p...

How can the HRM professional be prepared to deal with the variations in HR practices in the global environment

Explain project layout, Give an example of a project layout. Describe the s...

Give an example of a project layout. Describe the site and how the environment is organized?

Explain terms national economy and manufacturing sector, As a library or in...

As a library or internet assignment, find the U.S. productivity rate (increase) last year for (a) national economy, (b) manufacturing sector, and (c) service sector.

Define why is project management popular tool in recent year, Why is projec...

Why is project management popular tool in recent years?

Explain what is the maximum effective capacity of the system, The roller co...

The roller coaster at Treasure Island Amusement Park consists of 15 cars, each of which can carry up to three passengers. According to a time study each run takes 1.5 minutes and t

Explain what is the glass ceiling, What is the glass ceiling, and why do yo...

What is the glass ceiling, and why do you think it has proven to be such a barrier to women and minorities?

Explain where was the world''s first air raid in 1849, Where was the world'...

Where was the world's first air raid in 1849 from hot air balloons?

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