The table below summarises the financial information for construction of a solar Western Australia (Plan A). Land price Plan A $200,000 Cost of panels and equipment $6,000,000
The table below summarises the financial information for construction of a solar Western Australia (Plan A). Land price Plan A $200,000 Cost of panels and equipment $6,000,000
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 4PA: Net present value method, internal rate of return method, and analysis for a service company The...
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![The table below summarises the financial information for construction of a solar power plant in
Western Australia (Plan A).
Land price
Installation cost
Cost of panels and equipment $6,000,000
Maintenance cost per year
Fixed electricity price
Plan A
Service life
$200,000
End of life value
Electricity production per year 2,000,000 kWh
$1,000,000
$150,000
$0.6 per kWh
50 years
$3,000,000
Alternatively, we can use higher quality panels and equipment to increase annual electricity
production (Plan B). This increases the cost of panels and equipment to $8,000,000. The annual
maintenance costs are also going to be decreased to $70,000. All of the other parameters remain
unchanged. What is the minimum annual electricity production which results in the same benefit to
cost ratio for the two plans? Assume an interest rate of 10%.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8342b035-9205-4b5f-836c-08881ca83705%2F2ae87430-801f-4280-945e-5307de2ffafa%2F8wxsyqyq_processed.jpeg&w=3840&q=75)
Transcribed Image Text:The table below summarises the financial information for construction of a solar power plant in
Western Australia (Plan A).
Land price
Installation cost
Cost of panels and equipment $6,000,000
Maintenance cost per year
Fixed electricity price
Plan A
Service life
$200,000
End of life value
Electricity production per year 2,000,000 kWh
$1,000,000
$150,000
$0.6 per kWh
50 years
$3,000,000
Alternatively, we can use higher quality panels and equipment to increase annual electricity
production (Plan B). This increases the cost of panels and equipment to $8,000,000. The annual
maintenance costs are also going to be decreased to $70,000. All of the other parameters remain
unchanged. What is the minimum annual electricity production which results in the same benefit to
cost ratio for the two plans? Assume an interest rate of 10%.
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