ENGINEERING ECONOMY HELP PLEASE Combinedcycle power plants

(ENGINEERING ECONOMY) !! HELP PLEASE!

Combined-cycle power plants use two
combustion turbines to produce electricity. Heat
fromthe first turbine’s exhaust is captured to heat water
and produce steam sent to a second steam turbine
that generates additional electricity. A 968-megawatt
combined-cycle gas fired plant can be purchased for
$450 million, has no salvage value, and produces a net
cash flow (revenues less expenses) of $50 million per
year over its expected 30-year life.

A) If the hurdle rate (MARR) is 12% per year, how
profitable an investment is this power plant?
B)What is the simple payback period for the plant? Is
this investment acceptable?

Solution

a) hurdle rate =12%
initial cost = -450 and net cash flow = 50
conisder a year 10th!
The net present value at 15% hurdle rate = - $167.49 and PV of Expected Cash flows= $282.51
fhe 30th year also npv will be negative!
With a hurdle rate of 12.00% and a span of 30 years,the resulting NPV of the above project is negative which means you will not receive the required return at the end of the project--pursuing the above project may not be an optimal decision.

B) simple payback period = 450 / 50 = 9 years!
Given the year of the project which is 30! payback period of 9 is acceptable! However investment with negative NPV is in most cases are the one\'s to avoid!