Question

In: Economics

Project Wind Power Year 0 Year 1 Year 2 Year 3 Costs $6,000,000 $4,000,000 $0 $0...

Project Wind Power

	Year 0	Year 1	Year 2	Year 3
Costs	$6,000,000	$4,000,000	$0	$0
Benefits	$18,000,000	$15,000,000	$12,000,000	$12,000,000

Project Hydroelectric power

	Year 0	Year 1	Year 2	Year 3
Costs	$4,000,000	$2,000,000	$1,000,000	$0
Benefits	$10,000,000	$14,000,000	$15,000,000	$16,000,000

If the interest rate is 3%, which project would you choose and why? Show your work using excel (15 points)

If the interest rate is 15%, which project would you choose and why? Show your work using excel (15 points)

Expert Solution

ANSWER:

in excel we calcualte net present worth by using the npv function.

=npv(interest rate,cash flow from year 1 to year 3) + cash flow in year 0

1) I = 3%

*Project wind power*
*year*	0	1	2	3
*costs*	*-60,00,000*	*-40,00,000*	0	0
*benefits*	*1,80,00,000*	*1,50,00,000*	*1,20,00,000*	*1,20,00,000*
*cash flows*	*1,20,00,000*	*1,10,00,000*	*1,20,00,000*	*1,20,00,000*
*npv*	*4,49,72,462*

*Project hydroelectric power*
*year*	0	1	2	3
*costs*	*-40,00,000*	*-20,00,000*	*-10,00,000*	0
*benefits*	*1,00,00,000*	*1,40,00,000*	*1,50,00,000*	*1,60,00,000*
*cash flows*	*60,00,000*	*1,20,00,000*	*1,40,00,000*	*1,60,00,000*
*npv*	*4,54,89,095*

if the interest rate is 3% i would chose project hydro electric power.

2) i = 15% :

*Project wind power*
*year*	0	1	2	3
*costs*	*-60,00,000*	*-40,00,000*	0	0
*benefits*	*1,80,00,000*	*1,50,00,000*	*1,20,00,000*	*1,20,00,000*
*cash flows*	*1,20,00,000*	*1,10,00,000*	*1,20,00,000*	*1,20,00,000*
*npv*	*3,85,29,136*

*Project hydroelectric power*
*year*	0	1	2	3
*costs*	*-40,00,000*	*-20,00,000*	*-10,00,000*	0
*benefits*	*1,00,00,000*	*1,40,00,000*	*1,50,00,000*	*1,60,00,000*
*cash flows*	*60,00,000*	*1,20,00,000*	*1,40,00,000*	*1,60,00,000*
*npv*	*3,75,41,054*

if the interest rate is 15% i would chose project hydro wind power.

Rahul Sunny answered 2 years ago

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