Question

A wind turbine with a capital cost of $3 million delivers 10 million kWh/yr. Assuming a 35% corporate tax rate and a nominal 9% discount factor, find the following:

a) Net present value
b) Internal rate of return
c) Payback period
d) Return on investment

Answer 1

To find the net present value (NPV), internal rate of return (IRR), payback period, and return on investment (ROI) for the wind turbine, use the given information.

Step-by-step explanation:

To find the net present value (NPV), internal rate of return (IRR), payback period, and return on investment (ROI) for the wind turbine, we need to use the given information.

First, let's calculate the NPV. NPV is the present value of all future cash flows minus the initial investment. With a 35% corporate tax rate and a 9% discount factor, we can use the formula:

NPV = -Initial Investment + (Annual Cash Flow / (1+Discount Rate)^(Year + 1))

Next, the IRR is the discount rate that makes the NPV equal to zero. We can use the IRR function in Excel or a financial calculator to find the rate.

Then, the payback period is the time it takes for the initial investment to be recovered. We can calculate it by dividing the initial investment by the annual cash flow.

Finally, the ROI is the profit generated divided by the initial investment, expressed as a percentage. We can calculate it by dividing the total cash flows over the project's lifespan by the initial investment.