1. Two commonly used methods of financial analysis are payback and present value. Payback determines the length of time for an investment to return its original cost (1). Using the assumptions stated below the payback of the Jiminy Nick wind turbine with a cost of about $3.3 million would return the investment in about four years time. Net present value summarizes the initial cost of an investment, the estimated annual cash flows, and expected salvage value, taking into account the time value of money (1). A NPV calculation for the scenario SED is reviewing equals $7,697,286 minus the investment costs of $3,318,000 totaling $4,379,286.
The capital budgeting analysis reflects the ...view middle of the document...
2. The wind turbine at Jiminy Peak Mountain Resort can create an environmentally sustainable method of producing energy. Not only is the wind turbine environmentally sustainable, it can lead to tremendous cost savings for the resort. Below are the advantages (3):
• The turbine is able to generate energy 24 hours a day, 7 days a week. While the resort may not use all of the electricity that the turbine generates, the excess electricity can be diverted to the power grid and sold resulting in additional money for the resort (approximately $161,000/year).
• With a wind turbine, Jiminy Peak Mountain Resort will buy 2.3 million fewer kWh per year resulting in cost savings for the resort.
• The resort will benefit from renewable energy production tax credits for 10 years.
• The wind turbine eliminates the need for diesel fuel generated power.
• The wind turbine eliminates gases such as CO2, SOx and NOx.
• The turbine does not produce much sound at 200 yards away, only that equivalent to a quiet whisper.
3. While the wind turbine can be advantageous to Jiminy Peak Mountain Resort, the resort must also consider the disadvantages of erecting the turbine prior to making a final decision (4).
• The wind turbine is taller than the Statue of Liberty and its blades are more than 100 feet wide. Local residents may not want such a tall structure at the top of the mountain.
• The construction materials for the wind turbine would travel noisily through the local community which would add to the road congestion.
• The blades would not always turn because of insufficient wind strength. To build such a costly structure, the community and financial supporters would want to see the turbine generating electricity at all times.
• Finally, the construction of the wind turbine could cause turmoil amongst the community people because of conflicting views.
4. Additional positive considerations when considering the construction of the wind turbine are:
• Wind turbines take up much less space than the average power facility.
• Wind turbines are a great source of generating electricity in remote locations such as mountains.
• Wind is free.
Additional negative considerations when considering the construction of the wind turbine are:
• Because wind turbines produce less electricity than the average fossil fueled power facility, more turbines have to be built.
• Wind turbine construction is very expensive.
• Surrounding wildlife must be considered.
• Unreliability is a major issue. If there is no wind, there is no power production.
5. When considering multimillion dollar purchases at most companies executive management and even board approval is often required. The memo below is addressed to Brian Fairbank the President of the resort.
To: Brian Fairbank, President and CEO of Jiminy Peak Mountain Resort
From: Sustainable Energy Developments, Inc.
Subject: Wind Turbine Project Feasibility Study
Since last year,...