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Capital+budgeting Solved

The document provides inputs for a capital budgeting model to analyze the feasibility of an energy project in terms of net present value, internal rate of return, and sensitivity analysis. It includes details on the installed capacity, energy production, revenue, operating expenses, depreciation schedule, and investment costs for best, base, and worst case scenarios over a 10 year period. Calculations are shown for revenue, operating expenses, fixed asset balances, and depreciation expense each year.

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162 views22 pages

Capital+budgeting Solved

The document provides inputs for a capital budgeting model to analyze the feasibility of an energy project in terms of net present value, internal rate of return, and sensitivity analysis. It includes details on the installed capacity, energy production, revenue, operating expenses, depreciation schedule, and investment costs for best, base, and worst case scenarios over a 10 year period. Calculations are shown for revenue, operating expenses, fixed asset balances, and depreciation expense each year.

Uploaded by

utami
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as XLSX, PDF, TXT or read online on Scribd
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Input -->

Drivers

Create a capital budgeting model that uses the inputs listed below. Calculate the project's feasibility in terms of NPV, IRR, and perform a se

Selected case 1

Installed capacity (MW)


Best case 220
Base case 200
Worst case 180

Capacity factor 25%


Days in one year 365 Installed capacity (MW) x Capacity factor x Days
Hours per day 24

Inflation
Expected long-term inflation Italy 1%

Price per MWh (EUR)


Best case 220
Base case 210
Worst case 200

Opex as a % of Revenue
Best case -15%
Base case -16%
Worst case 17%

Estimated initial investment (in EUR)


Best case 500,000,000
Base case 510,000,000
Worst case 520,000,000

Useful life (years) 10


Capex after year 1 3%

Financing facilities
Senior Facility (million EUR) 300,000,000
Interest rate Senior Facility 4%
Repay Senior Facility in 10 years

Repayment schedule 0 1 2 3 4
Repayment % 0% 0% 5% 10% 10%

Tax rate 30%


Residual value of the project 100,000,000

Comparable companies Leverage (D/E) Beta


Company A 70% 0.50
Company B 80% 0.40
Company C 65% 0.35

Company X beta 0.9

Market risk premium 5.5%


Risk-free rate 2.0%
s of NPV, IRR, and perform a sensitivity analysis.

W) x Capacity factor x Days in the year x Hours per day = Energy output (MWh)

5 6 7 8 9 10 11 12
10% 10% 10% 10% 10% 10% 10% 5%
Workings -->
Savings forecast

Installed capacity (MW)


Best case 220
Base case 200
Worst case 180

Capacity factor 25%


Days in one year 365
Hours per day 24

Energy production MWh 1 2 3 4


Best case 481,800 481,800 481,800 481,800
Base case 438,000 438,000 438,000 438,000
Worst case 394,200 394,200 394,200 394,200
Selected case 481,800 481,800 481,800 481,800

Expected long-term inflation 1%

Price per MWh 1 2 3 4


Best case 220 222 224 227
Base case 210 212 214 216
Worst case 200 202 204 206
Selected case 220 222 224 227

Revenue (EUR) 1 2 3 4
Best case 105,996,000 107,055,960 108,126,520 109,207,785
Base case 91,980,000 92,899,800 93,828,798 94,767,086
Worst case 78,840,000 79,628,400 80,424,684 81,228,931
Selected case 105,996,000 107,055,960 108,126,520 109,207,785
5 6 7 8 9 10
481,800 481,800 481,800 481,800 481,800 481,800
438,000 438,000 438,000 438,000 438,000 438,000
394,200 394,200 394,200 394,200 394,200 394,200
481,800 481,800 481,800 481,800 481,800 481,800

5 6 7 8 9 10
229 231 234 236 238 241
219 221 223 225 227 230
208 210 212 214 217 219
229 231 234 236 238 241

5 6 7 8 9 10
110,299,863 111,402,861 112,516,890 113,642,059 114,778,479 115,926,264
95,714,757 96,671,904 97,638,623 98,615,010 99,601,160 100,597,171
82,041,220 82,861,632 83,690,249 84,527,151 85,372,423 86,226,147
110,299,863 111,402,861 112,516,890 113,642,059 114,778,479 115,926,264
Opex

Opex as a % of Revenue
Best case -15%
Base case -16%
Worst case -17%

Capacity factor 25%


Days in one year 365
Hours per day 24

Revenue 1 2 3 4
Best case 105,996,000 107,055,960 108,126,520 109,207,785
Base case 91,980,000 92,899,800 93,828,798 94,767,086
Worst case 78,840,000 79,628,400 80,424,684 81,228,931
Selected case 105,996,000 107,055,960 108,126,520 109,207,785

Opex as a % of revenue 1 2 3 4
Best case (15,899,400) (16,058,394) (16,218,978) (16,381,168)
Base case (14,716,800) (14,863,968) (15,012,608) (15,162,734)
Worst case (13,402,800) (13,536,828) (13,672,196) (13,808,918)
Selected case (15,899,400) (16,058,394) (16,218,978) (16,381,168)
5 6 7 8 9 10
110,299,863 111,402,861 112,516,890 113,642,059 114,778,479 115,926,264
95,714,757 96,671,904 97,638,623 98,615,010 99,601,160 100,597,171
82,041,220 82,861,632 83,690,249 84,527,151 85,372,423 86,226,147
110,299,863 111,402,861 112,516,890 113,642,059 114,778,479 115,926,264

5 6 7 8 9 10
(16,544,979) (16,710,429) (16,877,533) (17,046,309) (17,216,772) (17,388,940)
(15,314,361) (15,467,505) (15,622,180) (15,778,402) (15,936,186) (16,095,547)
(13,947,007) (14,086,477) (14,227,342) (14,369,616) (14,513,312) (14,658,445)
(16,544,979) (16,710,429) (16,877,533) (17,046,309) (17,216,772) (17,388,940)
Fixed asset roll-forward

Estimated initial investment (in EUR)


Best case 500,000,000
Base case 510,000,000
Worst case 520,000,000

Useful life (years) 10

Investment plan 0 1 2 3 4
Year 1 100% 3% 3% 3% 3%

in EUR 1 2 3 4
Beginning PP&E 500,000,000 465,000,000 428,500,000 390,500,000
Capex 15,000,000 15,000,000 15,000,000 15,000,000
D&A (50,000,000) (51,500,000) (53,000,000) (54,500,000)
Ending PP&E 500,000,000 465,000,000 428,500,000 390,500,000 351,000,000

D&A schedule (in EUR) 1 2 3 4


D&A Year 1 (50,000,000) (50,000,000) (50,000,000) (50,000,000)
D&A Year 2 (1,500,000) (1,500,000) (1,500,000)
D&A Year 3 (1,500,000) (1,500,000)
D&A Year 4 (1,500,000)
D&A Year 5
D&A Year 6
D&A Year 7
D&A Year 8
D&A Year 9
D&A Year 10
Total D&A (50,000,000) (51,500,000) (53,000,000) (54,500,000)
5 6 7 8 9 10
3% 3% 3% 3% 3% 3%

5 6 7 8 9 10
351,000,000 310,000,000 267,500,000 223,500,000 178,000,000 131,000,000
15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000
(56,000,000) (57,500,000) (59,000,000) (60,500,000) (62,000,000) (63,500,000)
310,000,000 267,500,000 223,500,000 178,000,000 131,000,000 82,500,000

5 6 7 8 9 10
(50,000,000) (50,000,000) (50,000,000) (50,000,000) (50,000,000) (50,000,000)
(1,500,000) (1,500,000) (1,500,000) (1,500,000) (1,500,000) (1,500,000)
(1,500,000) (1,500,000) (1,500,000) (1,500,000) (1,500,000) (1,500,000)
(1,500,000) (1,500,000) (1,500,000) (1,500,000) (1,500,000) (1,500,000)
(1,500,000) (1,500,000) (1,500,000) (1,500,000) (1,500,000) (1,500,000)
(1,500,000) (1,500,000) (1,500,000) (1,500,000) (1,500,000)
(1,500,000) (1,500,000) (1,500,000) (1,500,000)
(1,500,000) (1,500,000) (1,500,000)
(1,500,000) (1,500,000)
(1,500,000)
(56,000,000) (57,500,000) (59,000,000) (60,500,000) (62,000,000) (63,500,000)
Financing

Investment in Year 0 500,000,000

Financing facilities
Debt Facility (EUR) 300,000,000
Interest rate Debt Facility 4%
Repay Debt Facility in 10 years

in EUR 0 1 2 3
Beginning Debt 300,000,000 300,000,000 300,000,000 285,000,000
Repayment - - (15,000,000) (30,000,000)
Repayment % 0% 0% 5% 10%
Ending Debt 300,000,000 300,000,000 285,000,000 255,000,000

Interest expense - (12,000,000) (12,000,000) (11,400,000)

Net Cash Flow (500,000,000) 54,667,620 40,748,296 27,255,279


Equity financing 200,000,000 200,000,000 200,000,000 200,000,000
4 5 6 7 8 9 10
255,000,000 225,000,000 195,000,000 165,000,000 135,000,000 105,000,000 75,000,000
(30,000,000) (30,000,000) (30,000,000) (30,000,000) (30,000,000) (30,000,000) (30,000,000)
10% 10% 10% 10% 10% 10% 10%
225,000,000 195,000,000 165,000,000 135,000,000 105,000,000 75,000,000 45,000,000

(10,200,000) (9,000,000) (7,800,000) (6,600,000) (5,400,000) (4,200,000) (3,000,000)

29,188,632 31,128,418 33,074,702 35,027,549 36,987,025 38,953,195 40,926,127


200,000,000 200,000,000 200,000,000 200,000,000 200,000,000 200,000,000 200,000,000
P&L

in EUR 1 2 3 4 5
Revenue 105,996,000 107,055,960 108,126,520 109,207,785 110,299,863
Opex (15,899,400) (16,058,394) (16,218,978) (16,381,168) (16,544,979)
D&A (50,000,000) (51,500,000) (53,000,000) (54,500,000) (56,000,000)
EBIT 40,096,600 39,497,566 38,907,542 38,326,617 37,754,883
Interest expenses (12,000,000) (12,000,000) (11,400,000) (10,200,000) (9,000,000)
EBT 28,096,600 27,497,566 27,507,542 28,126,617 28,754,883
Taxes (8,428,980) (8,249,270) (8,252,262) (8,437,985) (8,626,465)
Net Income 19,667,620 19,248,296 19,255,279 19,688,632 20,128,418
6 7 8 9 10
111,402,861 112,516,890 113,642,059 114,778,479 115,926,264
(16,710,429) (16,877,533) (17,046,309) (17,216,772) (17,388,940)
(57,500,000) (59,000,000) (60,500,000) (62,000,000) (63,500,000)
37,192,432 36,639,356 36,095,750 35,561,707 35,037,325
(7,800,000) (6,600,000) (5,400,000) (4,200,000) (3,000,000)
29,392,432 30,039,356 30,695,750 31,361,707 32,037,325
(8,817,730) (9,011,807) (9,208,725) (9,408,512) (9,611,197)
20,574,702 21,027,549 21,487,025 21,953,195 22,426,127
Cash Flow

in EUR 0 1 2 3 4
Revenue - 105,996,000 107,055,960 108,126,520 109,207,785
Opex (15,899,400) (16,058,394) (16,218,978) (16,381,168)
Taxes - (8,428,980) (8,249,270) (8,252,262) (8,437,985)
Capex (500,000,000) (15,000,000) (15,000,000) (15,000,000) (15,000,000)
Operating Cash Flow (500,000,000) 66,667,620 67,748,296 68,655,279 69,388,632
Debt repayment - - (15,000,000) (30,000,000) (30,000,000)
Interest expenses - (12,000,000) (12,000,000) (11,400,000) (10,200,000)
Increase of equity - - - -
Net Cash Flow (500,000,000) 54,667,620 40,748,296 27,255,279 29,188,632
5 6 7 8 9 10 Residual Value
110,299,863 111,402,861 112,516,890 113,642,059 114,778,479 115,926,264
(16,544,979) (16,710,429) (16,877,533) (17,046,309) (17,216,772) (17,388,940)
(8,626,465) (8,817,730) (9,011,807) (9,208,725) (9,408,512) (9,611,197)
(15,000,000) (15,000,000) (15,000,000) (15,000,000) (15,000,000) (15,000,000)
70,128,418 70,874,702 71,627,549 72,387,025 73,153,195 73,926,127
(30,000,000) (30,000,000) (30,000,000) (30,000,000) (30,000,000) (30,000,000)
(9,000,000) (7,800,000) (6,600,000) (5,400,000) (4,200,000) (3,000,000)
- - - - - -
31,128,418 33,074,702 35,027,549 36,987,025 38,953,195 40,926,127 100,000,000
WACC

Cost of debt 4%
Risk-free 2%
Tax rate 30%
Market risk premium 5.5%

Comparable companies Leverage (D/E) Beta


Company A 70% 50%
Company B 80% 40%
Company C 65% 35%

in EUR 0 1 2 3 4
Debt financing 300,000,000 300,000,000 285,000,000 255,000,000 225,000,000
Equity financing 200,000,000 200,000,000 200,000,000 200,000,000 200,000,000
Total financing 500,000,000 500,000,000 485,000,000 455,000,000 425,000,000

Debt financing % 60.0% 60.0% 58.8% 56.0% 52.9%


Equity financing % 40.0% 40.0% 41.2% 44.0% 47.1%
Total financing % 100.0% 100.0% 100.0% 100.0% 100.0%

Comparable companies:
Average leverage 72%
Average beta 0.42

Project beta:
Debt / Equity 1.50 1.50 1.43 1.28 1.13
Beta unlevered 0.28 0.28 0.28 0.28 0.28
Project beta: 0.57 0.57 0.55 0.53 0.50

Cost of equity 5.1% 5.1% 5.0% 4.9% 4.7%

WACC 3.7% 3.7% 3.7% 3.7% 3.7%


5 6 7 8 9 10
195,000,000 165,000,000 135,000,000 105,000,000 75,000,000 45,000,000
200,000,000 200,000,000 200,000,000 200,000,000 200,000,000 200,000,000
395,000,000 365,000,000 335,000,000 305,000,000 275,000,000 245,000,000

49.4% 45.2% 40.3% 34.4% 27.3% 18.4%


50.6% 54.8% 59.7% 65.6% 72.7% 81.6%
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

0.98 0.83 0.68 0.53 0.38 0.23


0.28 0.28 0.28 0.28 0.28 0.28
0.47 0.44 0.41 0.38 0.35 0.32

4.6% 4.4% 4.2% 4.1% 3.9% 3.8%

3.7% 3.7% 3.7% 3.6% 3.6% 3.6%


Output -->
Discounted Cash Flows

Selected case 1

Residual Value 55,000,000

in EUR 0 1 2 3
Net Cash Flow (200,000,000) 54,667,620 40,748,296 27,255,279
Residual value
Net Cash Flow with Residual Value (200,000,000) 54,667,620 40,748,296 27,255,279
Cost of equity 5.1% 5.0% 4.9%
Discounted Cash Flow (200,000,000) 52,000,777 36,925,892 23,619,563
Present Value Residual Value
Discounted Cash Flow with Residual Value (200,000,000) 52,000,777 36,925,892 23,619,563

Discounted Cash Flows (NPV) * 134,087,581

IRR 15.4%

Sensitivity analysis
15.4%
70,000,000
80,000,000
85,000,000
95,000,000
115,000,000
4 5 6 7 8 9 10
29,188,632 31,128,418 33,074,702 35,027,549 36,987,025 38,953,195 40,926,127
55,000,000
29,188,632 31,128,418 33,074,702 35,027,549 36,987,025 38,953,195 95,926,127
4.7% 4.6% 4.4% 4.2% 4.1% 3.9% 3.8%
24,264,125 24,898,355 25,533,385 26,179,434 26,846,040 27,542,265 28,276,879
38,000,868
24,264,125 24,898,355 25,533,385 26,179,434 26,846,040 27,542,265 66,277,747

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