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Financial Analysis & Decision Making

by | May 21

Assignment – Financial Analysis & Decision Making
Assignment introduced concepts around financial analysis, cost estimation and decision making criteria. An informed financial analysis is often a crucial decision making tool for the distribution of capital.
Your consulting firm has been requested to undertake a financial analysis for Longreach Regional Council to assist in their financial decision making for a potential move “off the grid”.
Background Information
Longreach has a population of 3,300. The main industry is cattle and sheep grazing, closely followed by tourism. The town consumes approximately 8 gigawatt hours (GWh) of energy per annum and has a peak load of 3 megawatts (MW) which occurs between 6pm and 8pm each day.
Given their small power draw, increasing electricity prices and more frequent outages, Longreach Regional Council is hoping to move “off the grid” in the near future. The Longreach Regional Council is considering two proposals for ongoing provision of its energy without relying on the conventional electricity grid:
1. A conventional diesel fired power station.
2. A fixed panel solar photovoltaic (PV) array in combination with a Tesla energy storage system.
The investment decision is being made in November 2017. The life of the asset is expected to be 40 years (i.e. ending 40 years after the asset becomes operational). Your recommendation should be tied to the net present value (NPV) and internal rate of return (IRR) assuming that the nominal discount rate is 7%. Electricity is sold at a rate of 24 cents per kWh in 2017. The corporate tax rate is constant at 30%. Inflation is assumed to be constant at 2%. NPV should be in real terms.
Task –
Your consulting firm must develop a Financial Assessment. This Financial Assessment must:
include a Cover Letter addressed to the Client or project manager;
contain an Executive Summary (1 page);
provide a brief introduction to the two proposals (1 page);
include a methodology outlining your approach to the Financial Assessment process (1 page);
include a brief description of your estimation of the costs of each proposal (2 pages);
contain a Conclusion making clear the recommendation given the two options (1 page); and
include a Microsoft Excel financial spreadsheet to support your recommendations.
The Financial Assessment should have a maximum length of 6 pages, not including the cover pages or the Table of Contents.
Proposal A – Conventional Diesel Fired Power Station
In your Financial Assessment you must consider the following parameters for Proposal A:
capital cost of building the conventional diesel fired power station (approximately $600,000 per MW installed, including all voltage conversion systems);
capital cost of installing power lines from the plant to Longreach (~5km away);
consumption and cost of diesel to operate the plant;
time required to build the plant; and
provisions for rehabilitation and closure of the plant (which lies on 10 acres of flat grazing ground).
Proposal B – Fixed Panel Solar Voltaic Array
In your Financial Assessment you must consider the following parameters for Proposal B:
an appropriate size for the fixed panel solar voltaic array and battery system (which is assumed to include all voltage conversion systems);
capital cost of building the fixed panel solar voltaic array and battery system;
capital cost of installing powerlines from the array to Longreach (~6km away);
ongoing maintenance of the array and battery system; and
provisions for rehabilitation and closure of the array and battery system (which lies on flat grazing ground, the area of which is defined by the size of the array chosen).
Further Guidance – Further guidance is provided below:
Keep paragraphs short, and ensure that each sentence has a point and reads easily.
Create a logical Excel workbook with units and assumptions communicated clearly and consistently.
Consider investment risk and uncertainty in your analysis.
Any academic referencing met
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