Operating Capital

Question 1

Students will use Excel to analyze the NPV of a capital project using provided inputs and three potential scenarios. Based on the calculated NPV, students will determine if the firm should pursue the project. Tasks: Using the provided information students must calculate the appropriate class flows associated with the project.

These include:

1) cash flows from fixed assets;

2) cash flows from changes to operating capital; and

3) cash flows from operations. Remember to consider the impact of taxes on cash flows.

Calculate the base case scenario NPV. After calculating the base case NPV, the next step is to calculate the changes to cash flows and net present value for the worst case and best case scenarios. The overall expected NPV can then be estimated using the assumption of a 50% likelihood of the base case, 25% likelihood of the worst case, and 25% likelihood of the best case occurring.

Question 2

You are the CEO of a renewable energy company, in a written reply to the Department of Energy explain what challenges you’ve experienced and costs you have had to incur as a result of the delays with the signing of the PPAs.

Include/ Note the following: Costs can be fictitious but must be justified Costs must include human, equipment, financing, commercial costs etc. Financial implications of contractual agreements Development costs, retainers Jobs lost, secondary industries Dedicate a section to understanding Eskom’s reluctance to sign