The table below summarises the financial information for construction of a solar power plant inWestern Australia (Plan A).Land priceInstallation costCost of panels and equipment $6,000,000Maintenance cost per yearFixed electricity pricePlan AService life$200,000End of life valueElectricity production per year 2,000,000 kWh$1,000,000$150,000$0.6 per kWh50 years$3,000,000Alternatively, we can use higher quality panels and equipment to increase annual electricityproduction (Plan B). This increases the cost of panels and equipment to $8,000,000. The annualmaintenance costs are also going to be decreased to $70,000. All of the other parameters remainunchanged. What is the minimum annual electricity production which results in the same benefit tocost ratio for the two plans? Assume an interest rate of 10%.

Production - Production is the process of merging diverse immaterial inputs (plans, knowledge) with…

Answered: The table below summarises the…

The table below summarises the financial information for construction of a solar Western Australia (Plan A). Land price Plan A $200,000 Cost of panels and equipment $6,000,000

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 4PA: Net present value method, internal rate of return method, and analysis for a service company The...

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Question

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The table below summarises the financial information for construction of a solar power plant in
Western Australia (Plan A).
Land price
Installation cost
Cost of panels and equipment $6,000,000
Maintenance cost per year
Fixed electricity price
Plan A
Service life
$200,000
End of life value
Electricity production per year 2,000,000 kWh
$1,000,000
$150,000
$0.6 per kWh
50 years
$3,000,000
Alternatively, we can use higher quality panels and equipment to increase annual electricity
production (Plan B). This increases the cost of panels and equipment to $8,000,000. The annual
maintenance costs are also going to be decreased to $70,000. All of the other parameters remain
unchanged. What is the minimum annual electricity production which results in the same benefit to
cost ratio for the two plans? Assume an interest rate of 10%.

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