PLEASE SHOW ALL WORK!! Evaluation of a Cogeneration Project Capital cost: Construction cost

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PLEASE SHOW ALL WORK!!
Evaluation of a Cogeneration Project
Capital cost:
Construction
cost
$75.00 million
Commitment fees and financing
cost
$5.00 million
Total construction
cost
$80.00
Construction draw-down
period

18
months
Financing arrangement:
Long-term
debt
Per cent to be determined by the borrowing capacity using α =
1.20
Equity capital

Sponsors (local utility and engineering firm): 40%
Passive
investors:
60%
Capital is to be depreciated on straight-line basis over 10
years.
Debt to be paid back in 10 years in equal amounts.
Interest rate on debt: 8 per cent per annum.
Cash flow projections:
Assumptions:
Electricity $45 per
megawatt-hour (MWH), annual increase 5%
Steam

$4.00 per thousand pounds; annual increase 5%
Natural
gas $3.50 per million BTU; annual
increase 4%
Electricity
production:
1,550,000 MWH
Steam
production
1,060 million pounds
Gas
usage
14,700.1 billion BTU
First year = $6.5 million; annual
increase 5%.
The project is to be evaluated for 15 years. You have to
decide the amount of debt financing by keeping in mind that it has
to be within the feasible debt limit as determined by the α
value.
Calculate the IRR for both sponsors and passive investors.