Your company is planning to construct a gas-fired power plant in the Philadelphia area. They are considering one of the two following options, a Rolls Royce simple cycle gas turbine generator and a General Electric combined cycle gas turbine/steam turbine generator. Each power plant will produce power after construction for 30 years. Details on the power plant costs, capabilities, and heat rat are included in the table below. The price of natural gas in the future is uncertain. Table 1. Power Plant Financial and Operating Expenses Parameter Initial Capital Expenditure [$] Rolls Royce Simple Cycle Generator General Electric Combined Cycle Generator $250,000,000 $450,000,000 Annual Maintenance (Fixed) [$/yr] $3,250,000 $5,500,000 Annual Maintenance (Variable) [$/MWh] $3.65 $2.61 Fuel price ($/MMBtu*] $2.00 - $10.00 $2.00 - $10.00 Heat Rates [MMBtu/MWh] 8.3 5.4 Emissions Permits [$/MWh] 0.45 0.3 Power plant max capacity [MW] 250 250 Capacity factor 0.86 0.86 Power Generated Per Year [MWh/yr] 1,883,400 1,883,400 Revenue Per Unit of Electricity ($/MWh) $90.00 $90.00 Note: MMBtu is millions of Btu's Compare these options in terms of NPV and IRR over the range of possible gas prices. Costs include annual fixed and variable O&M, fuel, and emission permits. Revuene comes from electricity sales. Consider 25% of tax and straight-line depreciation for the lifetime of the plant (year 1 to year 30). Assume a discount rate for your company of 8%. Explain the results of your analysis in a memo, and make a recommendation. Should your company pursue a particular option, the alternative, or neither? Describe what kinds of changes to the provided assumptions would change your recommendation lee changes in fuel price).
Your company is planning to construct a gas-fired power plant in the Philadelphia area. They are considering one of the two following options, a Rolls Royce simple cycle gas turbine generator and a General Electric combined cycle gas turbine/steam turbine generator. Each power plant will produce power after construction for 30 years. Details on the power plant costs, capabilities, and heat rat are included in the table below. The price of natural gas in the future is uncertain. Table 1. Power Plant Financial and Operating Expenses Parameter Initial Capital Expenditure [$] Rolls Royce Simple Cycle Generator General Electric Combined Cycle Generator $250,000,000 $450,000,000 Annual Maintenance (Fixed) [$/yr] $3,250,000 $5,500,000 Annual Maintenance (Variable) [$/MWh] $3.65 $2.61 Fuel price ($/MMBtu*] $2.00 - $10.00 $2.00 - $10.00 Heat Rates [MMBtu/MWh] 8.3 5.4 Emissions Permits [$/MWh] 0.45 0.3 Power plant max capacity [MW] 250 250 Capacity factor 0.86 0.86 Power Generated Per Year [MWh/yr] 1,883,400 1,883,400 Revenue Per Unit of Electricity ($/MWh) $90.00 $90.00 Note: MMBtu is millions of Btu's Compare these options in terms of NPV and IRR over the range of possible gas prices. Costs include annual fixed and variable O&M, fuel, and emission permits. Revuene comes from electricity sales. Consider 25% of tax and straight-line depreciation for the lifetime of the plant (year 1 to year 30). Assume a discount rate for your company of 8%. Explain the results of your analysis in a memo, and make a recommendation. Should your company pursue a particular option, the alternative, or neither? Describe what kinds of changes to the provided assumptions would change your recommendation lee changes in fuel price).
Chapter14: Capital Structure Management In Practice
Section14.A: Breakeven Analysis
Problem 8P
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![Your company is planning to construct a gas-fired power plant in the Philadelphia area. They are considering one of the two following options, a Rolls Royce simple cycle gas turbine generator and a
General Electric combined cycle gas turbine/steam turbine generator. Each power plant will produce power after construction for 30 years. Details on the power plant costs, capabilities, and heat rat
are included in the table below. The price of natural gas in the future is uncertain.
Table 1. Power Plant Financial and Operating Expenses
Parameter
Rolls Royce Simple
Cycle Generator
General Electric Combined
Cycle Generator
Initial Capital Expenditure [$]
$250,000,000
$450,000,000
Annual Maintenance (Fixed) [$/yr]
$3,250,000
$5,500,000
Annual Maintenance (Variable)
[$/MWh]
$3.65
$2.61
Fuel price [$/MMBtu]
$2.00 - $10.00
$2.00 - $10.00
Heat Rates [MMBtu/MWh]
8.3
5.4
Emissions Permits [$/MWh]
0.45
0.3
Power plant max capacity [MW]
250
250
Capacity factor
0.86
0.86
Power Generated Per Year
[MWh/yr]
1,883,400
1,883,400
Revenue Per Unit of Electricity
($/MWh)
$90.00
$90.00
Note: MMBtu is millions of Btu's
Compare these options in terms of NPV and IRR over the range of possible gas prices. Costs include annual fixed and variable O&M, fuel, and emission permits. Revuene comes from electricity sales.
Consider 25% of tax and straight-line depreciation for the lifetime of the plant (year 1 to year 30). Assume a discount rate for your company of 8%. Explain the results of your analysis in a memo, and
make a recommendation. Should your company pursue a particular option, the alternative, or neither? Describe what kinds of changes to the provided assumptions would change your
recommendation (e.g. changes in fuel price).](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F888c783e-616c-4cbc-91c2-9dbc24f7b4cc%2F13f85e17-4de9-43c2-9502-74a96fa74fa1%2Fwwoyyi_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Your company is planning to construct a gas-fired power plant in the Philadelphia area. They are considering one of the two following options, a Rolls Royce simple cycle gas turbine generator and a
General Electric combined cycle gas turbine/steam turbine generator. Each power plant will produce power after construction for 30 years. Details on the power plant costs, capabilities, and heat rat
are included in the table below. The price of natural gas in the future is uncertain.
Table 1. Power Plant Financial and Operating Expenses
Parameter
Rolls Royce Simple
Cycle Generator
General Electric Combined
Cycle Generator
Initial Capital Expenditure [$]
$250,000,000
$450,000,000
Annual Maintenance (Fixed) [$/yr]
$3,250,000
$5,500,000
Annual Maintenance (Variable)
[$/MWh]
$3.65
$2.61
Fuel price [$/MMBtu]
$2.00 - $10.00
$2.00 - $10.00
Heat Rates [MMBtu/MWh]
8.3
5.4
Emissions Permits [$/MWh]
0.45
0.3
Power plant max capacity [MW]
250
250
Capacity factor
0.86
0.86
Power Generated Per Year
[MWh/yr]
1,883,400
1,883,400
Revenue Per Unit of Electricity
($/MWh)
$90.00
$90.00
Note: MMBtu is millions of Btu's
Compare these options in terms of NPV and IRR over the range of possible gas prices. Costs include annual fixed and variable O&M, fuel, and emission permits. Revuene comes from electricity sales.
Consider 25% of tax and straight-line depreciation for the lifetime of the plant (year 1 to year 30). Assume a discount rate for your company of 8%. Explain the results of your analysis in a memo, and
make a recommendation. Should your company pursue a particular option, the alternative, or neither? Describe what kinds of changes to the provided assumptions would change your
recommendation (e.g. changes in fuel price).
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