Budget and Cashflow Statement.edited-1

docx

School

The University of Nairobi *

*We aren’t endorsed by this school

Course

104

Subject

Finance

Date

Nov 24, 2024

Type

docx

Pages

Uploaded by josephwainainamacharia

1 Budget and Cash Flow Statement Student’s Name Professor’s Name Course Due Date

2 Introduction The "Solar Horizon" initiative, about to begin a journey of transformation, promises five years of sustainable energy brightness illuminating Alberta, Canada's vast landscapes. This solar power plant project, which has a powerful 10,000 KW capacity and is scheduled to begin on January 1, 2024, and end on December 31, 2028, is a significant step towards a more environmentally friendly future. Driven by a $20 million investment, the project uses 80% loan and 20% equity finance, achieving a healthy balance between fiscal responsibility and environmental stewardship. Designed to yield $0.1 per kWh, the project guarantees operational viability by allocating 10% of revenue to careful management and Maintenance and 5% to taxes, projected to increase by 5% annually. With a straight-line depreciation method spread over 20 years and an interest rate of 10% annually, Solar Horizon is more than simply an energy investment; it is a pledge to a cleaner and brighter future. Objectives The main goal is to establish thorough financial structures for the Solar Horizon project to ensure a smooth transition from the construction phase to the operating phase. This entails creating an elaborate budget that has been methodically planned for the day the job starts. This budget requires that financial allocations be clearly stated, accounting for all relevant variables and stating the as-of-date. Its goal is to guarantee both financial prudence and conformity with strategic financial objectives. The project's goal is to create a thorough Cash Flow Statement to map out a stable financial course throughout its operational phase. Projecting and analyzing the economic dynamics over a five-year period, beginning on the operation date, is the goal. Throughout

3 operations, this entails anticipating and controlling income, costs, depreciation, and loan repayments to promote financial stability and wise decision-making. Results and Discussion A) Budget Revenue The revenue calculation is as follows: Power capacity of generator: 10 MW = 10,000 kW Running at full capacity for 1 hour produces: 10,000 kW x 1 hour = 10,000 kWh If sold at $0.1 per kWh 10,000 kWh x $0.1/kWh = $1,000 Therefore, for 1 hour of the 10MW generator running, potential revenue at $0.1/kWh is $1,000 Now, if we assume this generator was running at full capacity for a period like monthly or yearly: Running 24 hours per day for 30 days = 720 hours per month At 10,000 kWh per hour = 7,200,000 kWh per month At $0.1 per kWh = $720,000 revenue per month

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

4 Running 24 hours per day for 365 days = 8,760 hours per year At 10,000 kWh per hour = 87,600,000 kWh per year At $0.1 per kWh = $8,760,000 revenue per year Therefore, if all 10 MW capacity of this generator were sold at $0.1 for an entire year, the potential revenue would be $8.76 million per year. The monthly payment would be $720,000 if operated at total capacity of 10MW. Operating cost and Maintenance The operating and maintenance costs were calculated by multiplying the ten percent by the total revenue. 10/100* 8760000 = $ 876000 Therefore, the O&M of the Company is $ 876000. Taxes Taxes were obtained by multiplying five percent by the revenue: 5/100* 8760000 = $ 438000 Therefore, the tax for 2024 was $438,000 This tax was to increase by five percent each year. The following are calculations of taxes from 2025 to 2028 2025 => 1.05* 438000 = $459,900 2026 => 1.05 *459,900 = $482,895 2027 => 1.05 * 482,895 = $507,039.75 2028 => 1.05 * 507,039.75 = $532,391.74 These above tax calculations were used in the cash flow.

5 Depreciation Cost The remaining value of a fixed asset after deducting the entire amount of documented cumulative depreciation is referred to as the depreciated cost (Hayes, 2021). The formulae for calculating the depreciation cost are: (Cost of machine – salvage value)/number of years => (20,000,000 – 0)/20 = $ 1,000,000 The depreciation cost of $ 1,000,000 was used in all year, i.e., from 2024 to 2028 Interest Amount The interest amount was calculated by multiplying the loan amount by 10%: => 10/100*16,000,000 = $1,600,000 The interest amount of $1,600,000 was use across all the years for calculating the cash flow of the company. Loan Repayment Loan repayment was obtained by dividing the loan amount by the total number of years; 16,000,000/5 = $ 3,200,000 The solar energy company (Horizon Initiative) is supposed to pay $ 3,200,000 every year for the next five years.

6 Net Income The calculation of Net Income is as follows; Net Income = Revenue- (Operating cost and Maintenance + Taxes + Depreciation Cost + Interest Amount + Loan Repayment) Net Income = 8,760,000 – (876000 + 438000 + 1,000,000 + 1,600,000 + 3,200,000) Net Income = $ 1,646,000 B) Cash Flows The cash flow statement serves as a corporate checkbook for balance sheet and income statement of a business (Hayes, 2022). There are two type of cash flow; cash outflows and cash inflows 1) Cash Inflows The cash inflows is money coming into the business. The company had two sources of cash inflows over the 5 years: Loan A total loan amount of $16,000,000 is received in 2023. This provides the initial financing needed for the solar plant project construction/development.

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

7 Revenue Annual revenues of $8,760,000 were earned from 2024-2028 once the solar plant becomes operational. This provides the operating cash flows over the projection period. 2) Cash Outflows Cash Outflows is the money that is going out of the business. From the table below, cash outflows of the solar horizon company incurred several cash mainly in the form of expenses: Project Cost A one-time $20,000,000 cash outlay for solar plant capital expenditure made in 2023 for development. Operations & Maintenance (O&M) Solar Horizon Company estimated operation and maintenance to be $876,000 annually from 2024-2028 based on 10% of revenues. Loan Repayment The Company is supposed to pay an annual loan principal repayments estimated at $3,200,000 from 2024-2028. Interest on Loan

8 Solar Horizon Company had an annual interest payment, which was estimated to be 10% on the outstanding loan balance. It comes down from $1,600,000 in 2024 to $1,600,000 in 2028 as the loan is gradually repaid. Taxes The estimated tax outflow of the Solar Horizon Company had 5% of pre-tax income. It Ranged from $438,000 in 2024 to $532,391 in 2028. Net Profit NET PROFIT 0 500000 1000000 1500000 2000000 2500000 3000000 NetProfit For The Five Years Year 2023 Year 2024 Year 2025 Year 2026 Year 2027 Year 2028 The chart and table above shows that the net profit of the Solar Horizon Company ranges from $2.646 million in 2024 to $2.552 million in 2028. The net cash profit is the amount left over from the project after funding costs and expenses for that particular year are deducted. The net profit shows the free cash flows from the solar plant asset.

9 Conclusion In Alberta, the Solar Horizon project is expected to bring a new era of sustainable energy. The thorough budget and five-year cash flow analysis demonstrate responsible financial planning, which paves the way for successful operations. After accounting for significant expenditures such as operations, Maintenance, taxes, depreciation, and financing charges, the project is projected to provide robust net cash flows between $2.6 and $2.5 million annually between 2024 and 2028. This suggests significant free cash generation for operational Maintenance and growth through reinvestment. Overall, Solar Horizon makes financial sense due to its planned fiscal structure that guarantees surpluses from the company's inception, in addition to its 10 MW capacity for CO2 mitigation. In Alberta, the future is bright for clean energy. References

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

10 Hayes, A. (2021, August 31). Depreciated Cost . Investopedia. https://www.investopedia.com/terms/d/depreciatedcost.asp#:~:text=The%20depreciated %20cost%20is%20the%20value%20of%20an%20asset%20after Hayes, A. (2022, June 29). Cash Flow . Investopedia. https://www.investopedia.com/terms/c/cashflow.asp