Investment Analysis Report Introduction This analysis was conducted with an aim of determining financial viability of investing in a wind farm in the Texas Panhandle. NPV method of capital budgeting was used in this analysis. To conduct an NPV analysis of a wind farm project in Texas panhandle data was collected from other similar projects to estimate the initial capital outlay operating costs and expected revenues. The data obtained varied from project to project due to factors such as the installed capacity after sale services and place and time of installation. Other factors considered in preparation of the cash flow project were; maintain the capital structure with financing cost of 8% before tax. Another assumption is that corporate tax will be 21%. I also assumed that the capacity factor will decay over time due to wear and tear and increased maintenance time as it more repairs may be required in late years than in the early years Recommendation and Conclusion The NPV of this project is $180 722 561.97 and hence investing in a wind farm in the Texas Panhandle is a financially viable project for TerraForm Power. The project should be accepted as it has a positive NPV according to NPV decision rule. [...]
Your task is to prepare a white paper in response to Annette’s email. Specifically, you need to: 1. Draft a white paper in Microsoft Word. a. Your white paper should be no more than two pages, double-spaced. Use 1-inch margins and normal font (e.g., 12-point Times New Roman). b. At a minimum, your paper needs to address the following: i. Is investing in a wind farm in the Texas Panhandle a financially viable project for TerraForm Power? Why or why not? ii. What key data points did you use in your analysis? Where did you get that data? iii. What were your key assumptions? Why did you make those assumptions? iv. If the project is currently not viable based on your analysis, what key changes would you recommend in order to make the project viable? Why? 2. You should include your analysis as an addendum to your white paper. a. Your analysis/addendum should be done in Excel and submitted as a separate file. b. You will need to do several things to complete your analysis. In particular, you will need to: i. Cash flow projections 1. You will need to do some research about the power produced by windmills, how much revenue should be expected, the cost of investment, and the cost of electricity production. 2. You will need to make some decisions and assumptions to complete your analysis. Be sure to note your assumptions in your white paper. ii. Estimate the weighted average cost of capital (WACC) 1. To do this, you will need to determine whether the project is average risk for the company. 2. If it is, you can use the company’s WACC. To calculate the WACC, you need to analyze the company’s financial statements and market data for the company’s stock and bonds. 3. If it is not an average-risk project for TERP, you’ll need to determine whether it is more or less risky, and you’ll need to make an appropriate adjustment to the WACC. One possible solution would be: a. Find a pure play and calculate their WACC. b. Calculate the unlevered WACC for the pure play. c. Re-calculate the pure play’s WACC using TERP’s capital structure. 4. Whichever direction you go, you will likely still need to make some assumptions. Be sure to note those in your white paper. iii. Use the appropriate capital budgeting technique and decision rule.