Question

Calculate the IRR if the power company gets a fixed feed-in tariff of $0.25/kWh, for 20 years and the salvage value of the plant after 20 years is $20 M.

Answer 1

IRR = 0.24495

Explanation:

Given data:

Tariff =$0.25

So, present value = $0.25

N = 20 year

salvage value after 20 year is $20 M

final value is $20 M

IRR means internal rate of return and it is given as

`IRR =[(FV)/(PV)]^(1/n) -1`

Where FV is final value and PV is present value

`IRR = [(20)/(0.25)]^(1/20) -1`

IRR = 0.24495

Answer 2

0.2449 or 24.49%

Explanation:

Calculate the IRR if the power company gets a fixed feed-in tariff of $0.25/kWh.

IRR means Internal Rate of Return is given by

`IRR=((FV)/(PV))^{(1)/(n)}-1`

Where, FV = Final value ($20)

PV = Present value ($0.25)

N = 20 years

Now put the values

`IRR=((20)/(0.25))^{(1)/(20)}-1`

=
`IRR=(80)^{(1)/(20)}-1`

= 1.24495742 - 1

= 0.24495742

Converting in percentage :

0.24495742 × 100 = 24.49%

IRR = 0.2449 or 24.49%