Capstone\'s focus applications include combined heat and power, resource recover
ID: 2750457 • Letter: C
Question
Capstone's focus applications include combined heat and power, resource recovery of waste fuel from well-head and biogas sites, power quality and reliability, and hybrid electric vehicles. And, unlike traditional backup power, this solution can support everyday energy needs and generate favorable payback. With the current design, which has a 60-KW rating, one of Capstone's genetators would cost about $84,000. The expected annual expense, including capital costs as well as operating costs, would run close to $19,000. These expenses yield an annual savings of close to $25,000 compared with the corresponding expenses for a conventional generator of the same size.
Capstone is considering a full-scale production of the system unit for residential use.The project requires an initial investment of $55 million. The companyy has prepared the financial data in Table ST12.4 related to the project.
The initial investment can be depreciated on a 7-year MACRS, and the project is expected to have an economic service life of 8 years. The firm's marginal tax rate is 35%, and its MARR is known to be 15%. Capstone will conduct the economic analysis based in the following implicit model of cash flow.
n=0: cash flow= - $55 million
n=1 to 8: cash flow= (revenue - costs - depreciation)*(1- tax rate) + depreciation
Revenues = market size*unit prize*(1+grownth rate)^(n-1)
Costs= (market size)*variable unit cost*(1+grownth rate)^(n-1) + fixed cost(excluding depreciation)
n=8: Adjust the cash flow in year 8 to reflect the gains tax (loss credit) and the salvage value
Assume that each random variable in Table ST12.4 in triangularly distributed with the parameters specified. Using your choice of software (such as Excel), develop the NPW distribution of the project.
Table ST12.4
Annual Market size (units)
Growth rate(annual)
Unit price
Unit variable cost
Fixed cost(annual) excluding depreciation
Salvage value
a) Document the procedure to obtain your NPW distribution
b) Compute the mean and variable of the NPW distribution
c) Determine the probability the annual NPW would be below the expected NPW
Random Variables Low Most Likely HighAnnual Market size (units)
5000 8000 10000Growth rate(annual)
0.03 0.05 0.08Unit price
$80,000 $84,000 $86,000Unit variable cost
$56,000 $60,000 $65,000Fixed cost(annual) excluding depreciation
$5,000,000 $8,000,000 $9,000,000Salvage value
$6,000,000 $7,000,000 $8,000,000Explanation / Answer
Annual Market size (units) 8000
total profit = 338101920
pv of salvage = 1487850 (7000000*.65 * .387)
total = 339589770
= (339589770 * 1.05) / marr - growth rate
= 356569259 / .15 -.05
= 3565692585 $
C. Expected demand can be found = ( low demand + 4 most likely demand + high demand ) / 6
= (5000 + 4* 8000 + 10000) / 6
= 47000/6 = 7833.33 units
Annual Market size (units) 8000