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Sunshine Power, Inc. has been asked to create a solar field on a Caribbean island -calculations only




Question;Sunshine Power, Inc. has been asked to create a solar field;on a Caribbean island (fictitious situation and data). The Island government;will provide the land. Sunshine Power will provide all the solar power;generating equipment, auxiliary storage for nights and for days when sunlight;is not available, and to operate the solar power field. Sunshine Power does not;have any power generating faculties, of any type, on the island at present. The;compensation to Sunshine Power will be $.65 per kilowatt hour (kWh) in year 1;and decrease by $0.05 per year until year 7 when it will be $0.35 per kWh. This;$0.35 is about one half of their current cost of oil generated power. It will;stay constant at $0.35 for the remaining years of the contract. The expected;demand is expected to average 2,000,000 kWhs per year in year 1 and increase;10% each year thereafter. The operating costs of the solar field are estimated;at $.02 per kWh. The annual expenses for managing the solar field are $180,000;for Salaries and Benefits, $12,000 for administrative costs, $80,000 for;Maintenance, $120,000 for security, and $50,000 for insurance coverage for;damage due to wind, water and other natural calamities. These costs are;forecasted to be increase by 10% in the 6th,11th and 16th years of the;contract. The upfront investment cost for Sunshine Power is estimated at;$2,500,000. It will be depreciated using 20-year MACRS. Do not apply the;half-year depreciation rule in year 20 (the effect would be miniscule). Every;five years, in years 6, 11, and 16, an added investment of $250,000 is to be;made to replace hardware as needed and to increase capacity. This is to be;treated as an expense in the year in which it is incurred. Income tax will be;taxed at 15%. The capital gains tax rate is 20%. Tax credits, if any, from this;project can be used to offset taxes from other projects of the company. The;contract for the project will be for 20 years at which time Sunshine LLC will;receive $1,000,000 if the project is not renewed. If this contract is successful;many more are possible on other islands or near major cities on larger islands.;From a financial perspective, determine if the project be undertaken if;Sunshine Power uses a MARR of 15% annually? Do this from the perspective that;Sunshine?s contract is terminated at the end of year 20.;Project Guidelines;The task is to prepare a written proposal for a CFO and CEO;for their determination of whether this project should be approved, or at least;be kept for further consideration after others are reviewed. It is not a;marketing document for a customer, it is not a research paper, but rather an;applied exercise using the concepts of the course. The suggested approach and;relevant content are as follows: Create a data block Create an income statement;Create a cash flow statement and criteria calculations Perform modeling;analysis and preliminary report Prepare the report Review and refine, including;TurnItIn review Submit the financial analysis as a MS Word document and Excel;spreadsheet(s). Submit the final report no later than August 22th. The final;report should be 8-12 pages in length. The report should include a cover page;an executive summary, and the proposal. The length limit of the report includes;the cover page, executive summary, the proposal and appendices if any. A table;of contents is optional. The length does not include the separate Excel;workbook. A length more than 12 pages will be penalized. This proposal itself;should have an introduction, the financial analysis that explains the critical;data and results, discussion of critical variables and their implications for;which financial modeling is relevant, and a conclusion While financial;statements should be in the Word document (abbreviated versions are;recommended), a complete set also should be submitted in a separate Excel file.;Since this is a project for preparing a financial proposal for a CFO/CEO rather;than a research paper, APA format is not required. There are not a required;number of references. But there is a requirement, inherent in all writing, that;if the creative work of others are used it must be cited. Submit your finished;paper to TurnItIn. Directions for TurnItIn are posted in the Turnitin;discussion topic. This is required. Although students must do the submission to;TurnItIn and can make multiple submissions to remove problem areas, the results;will be retrieved from the TurnItIn site by the professor when the paper is;graded. Tom Sant (2004), in his book Persuasive Business Proposals, includes;the following comments concerning business proposals.;First and foremost, focus on the reader, their background;and their needs from the report. Do not include any verbiage that a CFO and CEO;already know, and especially not anything that tells them how to do their job.;The focus must be on the project and its relevance to the;company, not you the writer. It is not a resume. Therefore, formal business;proposals should not contain personal pronouns like ?I?, ?me? or ?we?.;The short executive summary provides the information that;the executive uses to decide whether to read any more than the summary. Focus;only on what he/she needs to know up front. Get right to the point in the first;sentence. State up front the benefits of the proposal with the most important;first. This includes results of evaluation criteria (financial and non-financial).;Executives use this up front evaluation to decide whether to continue reading;and it is referred to as an executive summary for this reason. They immediately;need to know what problem will be addressed and the criteria and their results.;The body of the report contains the details that support the;claims stated in the executive summary. Use data to support any claims and show;how conclusions were made. Condense the actual data, for instance showing every;fifth year or other approach, to give the reader the needed information without;losing them in details. Reference the details as being in the spreadsheets.;Discuss risks found in a modeling analysis. Suggest actions, besides normal;project management, that should be taken before and during the project that;would reduce these risks.;The conclusion of about a page should repeat much of what;was in the executive summary, but is stated to reflect the information in the;report. Do not request executives to call you with questions as they of course;will do that if needed. Rather in the conclusion, summarize the potential;risks, and what the organization needs to do next, including any deadlines.;Make it compelling...


Paper#38325 | Written in 18-Jul-2015

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