In: Finance
4.5 If the total capital cost of the Section 4.6 plant design is $600,000,000 and the annual administrative and maintenance costs are one cent per kW-hr, what is the minimum cost of electricity per kW-hr, assuming an annual interest rate of 9% and an expected plant lifetime of thirty-five years?
4.24 Upon hiring on with Hot Stuff Engineering Company after graduation, you purchase a $30,000 automobile to establish an image as a prosperous engineer. You pay no money down, but 1% interest per month, compounded monthly, for four years. What are your monthly payments? What will your payments be if you are paying simple interest?
4.5
The question has very limited information. The question really asks
is- cost of admin and maintenance is 1% of the electricity sales.
The interest payment is 9% of the total capital cost of $600 Mn.
The selling price of the electricity should at least cover the
interest charge. Hence, the cash flows are -
Electricity sales 100%
Admin & maintenance costs 1%
EBIDTA 99%
Interest charge
=9%*600,000,000 54000000
99% of sales margin should at least cover interest charge. Hence,
the sales should be at least-
54,000,000/99%=$54,545,455
Unit price of electricity per kWh= 5,4545,454/Total
production of electricity from the plant
4.24
Loan amount= $30,000
Loan period= 4 years= 48 months
Interest rate= 1% per month
There are 2 ways of looking at the loan. One is pay only
interest per month during the 4 years of term of the loan and repay
the lump sum of $30,000 at the end of 4 years. This is a very
unusual situation. The interest rate calculation method- monthly
compounding or simple interest will not make any difference to
amount paid monthly since no interest is paid. the interest only
payment is calculated as below. Please note that the loan principal
is 100% outstanding at the end of the 4 year period. Hence, is
marked as -30,000 in the formula
Monthly payments $300.00
Other way is to repay the loan through equal monthly
installments over 4 year period. Monthly repayment is calculated as
below for monthly compounding-
Monthly payments $790.02
In case of simple interest, the interest on the loan principal
is-
Simple interest per month= 300
The principal is repaid over a period of 48 months. Hence,
principal repayment every month is
Principal repayment= 625
Total monthly repayment is the sum of interest component and
principal repayment
Monthly repayment= 925