Capital cost:Construction cost $85.00 millionCommitment fees and financing cost 5.00 millionConstruction draw-down period 18 monthsFinancing arrangement:Long-term debt Per cent to be determined by the borrowing capacity using α = 1.20Equity capital Sponsors (local utility and engineering firm): 40%Passive investors: 60%Capital is to be depreciated on straight-line basis over 10 years.Debt to be paid back in 10 years in equal amountsInterest rate on debt: 8 per cent per annumCash flow projections:Assumptions:1. Capacity utilization: 95 percent2. Prices at the time the plant is placed in service and contracted growth ratesElectricity $45 per megawatt-hour (MWH), annual increase 5%Steam $4.00 per thousand pounds; annual increase 5%Natural gas $3.50 per million BTU; annual increase 4%3. Predicted volumes at 95 percent capacityElectricity production: 1,550,000 MWHSteam production 1,060 million poundsGas usage 14,700.1 billion BTU4. Operating and other expenses:First year = $6.5 million; annual increase 5%.5. Tax rate: 40%.6. Residual value of the project (after tax): $70 millionThe project is to be evaluated for 15 years. The relevant discount rate for calculating the NPV is 10%.Calculate the NPV and the IRR
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