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

Negative feedback in open system, Negative Feedback in Open System A u...

Negative Feedback in Open System A ubiquitous feature of all open systems is feedback. This is necessary for a system to maintain dynamic equilibrium despite being subjected t

Network construction, The following table lists a set of nine activities wi...

The following table lists a set of nine activities with their sequence requirements and estimated activity times.A,B,C,D,E,F,G,H

Describe the advantages of using work sampling, Discuss the advantages of u...

Discuss the advantages of using work sampling to understand how employees allocate their time among work activities.

Explain specifically about team incentive rewards, Do results from the surv...

Do results from the survey illustrate typical complaints about teams and specifically about team incentive rewards?

Steps in first few months of your leadership, You have just been asked to l...

You have just been asked to lead struggling Yahoo, just as Marissa Mayer stepped into the role. Discuss the steps you would take in the first few months of your leadership. Explain

Rules related to the design of tools and equipment, Related to the  Desig...

Related to the  Design  of Tools and Equipment: 1.        The hands should  be relieved of all work  that can  done more  advantageously by a jig a  fixture  or a foot operate

Explain type of franchise network, Why is it that small businesses like Col...

Why is it that small businesses like Cold Stone Creamery are at a disadvantage as they pursue non-Web-based international expansion strategies? What other international markets is

Why service adds value to a business products and customers, Service is the...

Service is the last activity in the Value Chain. Explain how service adds value to a business products and customers.

Explain dynamics of leadership, Part of the dynamics of leadership include ...

Part of the dynamics of leadership include dealing with innovation. Explain the 4 Ps of innovation. Give an example of a product that has gone through an innovative change. Which o

Describe an issue involving mortgage foreclosures, Discusses an issue invol...

Discusses an issue involving mortgage foreclosures in your state and write a summary

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