A community is looking to build a dam over a stretch of river that is currently being used for recreation. The dam will generate electricity. The dam will have a useful life of 50 years after which its reservoir will be full of sediment and the dam will need to be removed. The following are the characteristics of the dam: Initial cost: $350,000,000 Electricity produced: 200,000 MWh per year at $150/MWh Value of recreation lost: $20,000,000 per yea An electricity company is deciding whether or not to invest in electricity generation in the community. They expect the new power plant to have a lifetime of 15 years. Investment expenditures in each year is $9500, while operations and maintenance expenditures are $12,500. Fuel expenditures in each year are $50,000, and the plant is expected to generate 3500 kwh of electricity in each year. If the company’s discount rate is 5% and the price at which they expect to sell the electricity is $30,000 over that period, is the power plant a viable investment?
A community is looking to build a dam over a stretch of river that is currently being used for recreation. The dam will generate electricity. The dam will have a useful life of 50 years after which its reservoir will be full of sediment and the dam will need to be removed.
The following are the characteristics of the dam:
Initial cost: $350,000,000
Electricity produced: 200,000 MWh per year at $150/MWh Value of recreation lost: $20,000,000 per yea
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An electricity company is deciding whether or not to invest in electricity generation in the community. They expect the new power plant to have a lifetime of 15 years. Investment expenditures in each year is $9500, while operations and maintenance expenditures are $12,500. Fuel expenditures in each year are $50,000, and the plant is expected to generate 3500 kwh of electricity in each year. If the company’s discount rate is 5% and the price at which they expect to sell the electricity is $30,000 over that period, is the power plant a viable investment?
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