Question

Calculate the Internal Rate of Return (IRR) for an investment in a 400-MW power plant with an expected life of 30 years. This plant costs 1200 $/kW to build and has a heat rate of 9800 Btu/kWh. It burns a fuel that costs 1.10 $/MBtu. On average, it is expected to operate at a maximum capacity for 7446 h per year and sell its output at an average price of 31 $/MWh.

What should be the average price of electrical energy if this investment is to achieve a MARR of 13%?

Answer 1

To calculate the IRR for the investment in the power plant, determine the cash flows over its expected life. Use the NPV formula to calculate the average price of electrical energy for a MARR of 13%.

Step-by-step explanation:

The Internal Rate of Return (IRR) is the discount rate at which the net present value (NPV) of an investment becomes zero. In order to calculate the IRR for the investment in the 400-MW power plant, we need to determine the cash flows associated with the plant over its expected life of 30 years.

To calculate the average price of electrical energy that will achieve a Minimum Acceptable Rate of Return (MARR) of 13%, we can use the NPV formula. The NPV of the investment can be calculated as the sum of the present values of the cash inflows (revenue from selling electricity) and the present values of the cash outflows (cost of building and operating the power plant).

By finding the average price of electrical energy that will make the NPV of the investment zero, we will be able to determine the required price to achieve a MARR of 13%.