altaf al ali
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topic under financial introduction:
QUESTIONS:
Estimate the free cash flows for the first 16 years of the project (see cash-flow table attached)
Assuming the terminal value of the project is small enough to be ignored, and for a 12% discount rate, would you decide to invest in this project?
Technical & operating data:
Capacity 20 MW
Capacity factor: 50%
Expected production: 88 GWH (20MW x 50% x 365 × 24)
CO2 saving: 0,8 tons per MWH (reference to estimate allocation of Emissions Rights each year)
Electricity price: 30€/MWH (expected to increase at 1,5% per year)
Carbon price: 5€/ton (reference to estimate the value of emission rights, not taxable)
EBITDA as a % of sales: 82%
Working capital needs: 20 days of sales
Capital expenditure: Total 20
year 0 : 6 millions €
year 1 : 14 millions €
Depreciation: straight line over 15 years
Tax rate: 25%
Production 88000 MWH
price increase 1.50%
EBITDA % of sales 82% including maintenance
Investment 6000000 14000000 ,
dep over 15 years
tax rate 25%
WC 20 days of sales
Equity 30%
Rf 4%
MRP 5%
Beta 0 debt 50%
Beta leveraged 138%
emission rights 5 € per ton (not taxed)
CO2 saving 0.80 tons per MWH
Emission rights/year 70400
Tranche 1 rate 10.00%
tranche 2 rate 5.00%
maturity 12 years
Dividends 30% income year 6 to 10 6
60% from year 11 onwards
beta zero debt 0.50
Risk free rate 4.00%
MRP 5.00%
Years 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Quantities sold (MWH)
x Price
= Power Sales
= EBITDA
– Depreciation
= EBIT
– Taxes
= NOPAT
+ Depreciation
– Change in WC
= Operating CF
+ Emission rights
– Investment expenditures
= Free Cash Flow
– net Debt service 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Cash Flow to equity 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
ADCR #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!
average ADCR #DIV/0!
0 0 0 0 0 0 0 0 0 0 0 0 0
LLCR #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!
Dividends 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Income statement
EBIT 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
interest expenses 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Income before tax 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
carry forward of losses (3 years max) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Taxable income 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Tax 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Net income 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Capital invested 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Equity 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
initial equity 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
retained earnings 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Debt tranche 1 0 0 0 0
interest payment 0 0 0 0 0
Principal repayment 0
Debt tranche 2 0 0 0 0 0 0 0 0 0 0 0 0 0
Principal repayment 0 0 0 0 0 0 0 0 0 0 0 0 0
interest payment 0 0 0 0 0 0 0 0 0 0 0 0 0
Total Debt 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Gearing #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!
Equity b #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!
ke #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!
kd 10.00% 10.00% 10.00% 10.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
WACC #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!
Discounted CFADS @ wacc #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!
NPV (term val = 0) #DIV/0!
tax shield 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
discount rate (average kd) 10.00% 10.00% 10.00% 10.00% 10.00% #DIV/0! #DIV/0! #DIV/0! 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Present value of tax shield @ kd 0 0 0 0 0 #DIV/0! #DIV/0! #DIV/0! 0 0 0 0 0 0 0 0 0
Total #DIV/0!
Discounted CFAFDS @ ke zero debt #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!
NPV at ke zero debt #DIV/0!
APV (term val = 0) #DIV/0!
#DIV/0! #DIV/0! #DIV/0!
CFAFDS net of emission rights 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
discounted @ ke zero debt #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!
Emission rights 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
discounted @ risk free rate 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
APV’ (term val = 0) #DIV/0!
#DIV/0! millions €
equity 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Debt tranche 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Debt tranche 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Total Funds available 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Fixed Assets + WC 0 0 #REF! #REF! #REF! #REF! #REF! #REF! #REF! #REF! #REF! #REF! #REF! #REF! #REF! #REF! #REF!
Cash 0 0 #REF! #REF! #REF! #REF! #REF! #REF! #REF! #REF! #REF! #REF! #REF! #REF! #REF! #REF! #REF!
value end of year 5 (APV’ rule)
Value end of future CFADS #DIV/0!
terminal value #DIV/0! based on continuity of cash-flows growing at 1,5% from an adjusted final cash-flow = CFADS 16 – dep; plus PV of ER
Total project value #DIV/0!
Debt outstanding 0
Value of equity #DIV/0!
#DIV/0! millions €
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TheWhite Prince
1,384 post(s)
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wow, it is mostly languages. you need solver or goal seeker in excel.
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Koichi C
Admin
1,374 post(s)
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42?
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Tyler Rear
660 post(s)
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Lol, Hopefully some out there will get the reference. Unfortunately I do not have an answer for the problem. I think I need someone to help me with the problem I have with that problem.
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TheWhite Prince
1,384 post(s)
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that is a very complicated problem, solved only by goal seeker or solver, or any other similar software, trust me it is so hard for the human mind to do that operation.
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Giulio P
79 post(s)
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I know the answer. Only I am torn between “#DIV/0!” and “#REF!”.
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Marco C
Admin
1,651 post(s)
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yes? ;-)
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TheWhite Prince
1,384 post(s)
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the answer is 0, where is my prize, please send it to Egypt, i will give you the address if the value of the prize is big, like a nice Mercedes , or a flat in San Stefano four season
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Giulio P
79 post(s)
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Wait… we all want to get paid. After all, the topic said “answer this question and get paid” and not “answer this question correctly and get paid”.
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Mair Lloyd
648 post(s)
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This is the second time I have seen this type of problem posted and I think Kamal is the man to teach us how to solve it. So ….. all it requires is to ask him to give a paid lesson or two ;)…. when we know how much Altaf is willing to pay, we can all decide whether we can make a profit by going to Kamal first :)
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Tyler Rear
660 post(s)
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Get paid in what is the question, Oreos, Pandas, micro fibers?
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Mair Lloyd
648 post(s)
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Hmm I don’t think I could cope with being paid in Pandas …..
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Tyler Rear
660 post(s)
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At least you could run your own petting zoo or zoo period.
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Mair Lloyd
648 post(s)
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Well now, that would be quite a career change for me, but I am always up for a challenge. I am not sure petting Pandas is a good idea though….
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Dave Keays
942 post(s)
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@Koichi; I think 42 only works as an answer when the question isn’t known.
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Katherine Ga...
349 post(s)
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I’ll try my luck and go for NO. I would not invest in this project. =)
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Giulio P
79 post(s)
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“At least you could run your own petting zoo or zoo period.”
Al long as they are not “fractional” Pandas.
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TheWhite Prince
1,384 post(s)
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hey ya altaaaaaaaaaaaaaaf, where are you? you left us discussing the problem and just disappeared……
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altaf al ali
6 post(s)
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im afraid it was my fault posting the question this way its actually solved using excel and calculating each item than compare the results so 24 , zero its not correct and need to explain or comment on the answer it is very hard for me to solve and when i paste it #div and other stuff showed like this but really thanks for trying :)
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altaf al ali
6 post(s)
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QUESTIONS:
Estimate the free cash flows for the first 16 years of the project (see cash-flow table attached)
Assuming the terminal value of the project is small enough to be ignored, and for a 12% discount rate, would you decide to invest in this project?
Technical & operating data:
Capacity 20 MW
Capacity factor: 50%
Expected production: 88 GWH (20MW x 50% x 365 × 24)
CO2 saving: 0,8 tons per MWH (reference to estimate allocation of Emissions Rights each year)
Electricity price: 30€/MWH (expected to increase at 1,5% per year)
Carbon price: 5€/ton (reference to estimate the value of emission rights, not taxable)
EBITDA as a % of sales: 82%
Working capital needs: 20 days of sales
Capital expenditure: Total 20
year 0 : 6 millions €
year 1 : 14 millions €
Depreciation: straight line over 15 years
Tax rate: 25%
Production 88000 MWH
price increase 1.50%
EBITDA % of sales 82% including maintenance
Investment 6000000 14000000 ,
dep over 15 years
tax rate 25%
WC 20 days of sales
Equity 30%
Rf 4%
MRP 5%
Beta 0 debt 50%
Beta leveraged 138%
emission rights 5 € per ton (not taxed)
CO2 saving 0.80 tons per MWH
Emission rights/year 70400
Tranche 1 rate 10.00%
tranche 2 rate 5.00%
maturity 12 years
Dividends 30% income year 6 to 10 6
60% from year 11 onwards
beta zero debt 0.50
Risk free rate 4.00%
MRP 5.00%
this is the question all
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Mair Lloyd
648 post(s)
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@Altaf, honestly, your best bet it is to pay for a session with Kamal . None of us knows how to solve this, but he will be able to teach you how to do it.
Best of luck….
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SmallHands Fund
2 post(s)
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Not going to answer this question because (ugh) that would take too much work and I have a class (on Investing!) to teach in less than an hour …. but here are some thoughts:
To Estimate FCF: First you need your Net Income then you add in Amortization/Depreciation, but you already have this because the problem tells you your EBITDA is 82% of sales (WOW!), so if you have a number for sales, take 82% of that …. if you don’t make up a number. Most likely your professor (I assume this is for a class) wants sensitivity analysis done too, so you’ll need to solve for various sales levels anyway.
Anyhow, once you have that number minus out Changes in Working Capital and Capital Expenditures …. you have these numbers too Changes is listed as 20 days worth of sales (so annual sales/365 * 20) and …. if I understand your information correctly …. CapExpend is the same?
Once you have FCF for various levels you should be able to do IRR (Internal Rate of Return) or NPV (Net Present Value) for the figures and decide whether the investment is good or not. I’ve never done IRR with FCF so I would probably do it with just the EBITDA, but I’d ask your professor about this just to be sure.
Get out Excel and work with it. No one is going to do this work for you because the people who know how to do it know how much work it really is :) Good Luck!
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SmallHands Fund
2 post(s)
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Hahaha and any minute now Kamal Das is going to come in and correct me I just know it! XD XD XD Like being back in business school!
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Shiira G.
60 post(s)
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I just wanted to say “woah!!!!” @ SmallHandsFund. As I learned in Japanese, atama ga ii desu (you have a good head). Saddened I can’t take your upcoming investment class(es). Would sure help clear up some financial management issues I had a hard time with during this last semester. Hoping I can work with Kamal over the summer as he also has a good head. You tutors ROCK on eduFire!!!
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Kamal Das
180 post(s)
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@ Mair, thanks so much for recommending me :)
@SmallHandsFund, great to see you hosting a class on investing. Nice directions in helping Altaf solve the problem.
@ Altaf, best would be to attend a class by someone teaching finance than trying your luck with some kind soul who may provide the right solution with reasoning. Why not join SmallHandsFund’s next class?
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