waptrick
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PrivaPower Ltd is considering the construction
of a hydro-electric power station. The
electricity generated by the power station
will be sold to Eskom. You are required to
calculate the capitalised cost now of the
perpetual service if the enterprise’s cost of
capital amounts to 14% per annum. The
following information is provided to you:
After completion of the dam wall’s construction
(i.e. five years from now) the turbines can be
installed. The cost associated with this will amount
to R5 000 000. The turbines’ expected lifetime is 25
years, where afterit must be replaced. It is expected
that the replacement will take place every 25
years at the same cost of R5 000 000 per occasion.
My question is:
Suppose, however, that it is indicated that the annual maintenance cost (payable at the beginning of each year) of the turbines will amount to R50 000 when the first turbines are installed, and that this annual cost will thereafter increase by 11% per year (each year in comparison to the immediately preceding year) as a result of inflation. Recalculate the capitalised cost of the annual maintenance cost.
of a hydro-electric power station. The
electricity generated by the power station
will be sold to Eskom. You are required to
calculate the capitalised cost now of the
perpetual service if the enterprise’s cost of
capital amounts to 14% per annum. The
following information is provided to you:
After completion of the dam wall’s construction
(i.e. five years from now) the turbines can be
installed. The cost associated with this will amount
to R5 000 000. The turbines’ expected lifetime is 25
years, where afterit must be replaced. It is expected
that the replacement will take place every 25
years at the same cost of R5 000 000 per occasion.
My question is:
Suppose, however, that it is indicated that the annual maintenance cost (payable at the beginning of each year) of the turbines will amount to R50 000 when the first turbines are installed, and that this annual cost will thereafter increase by 11% per year (each year in comparison to the immediately preceding year) as a result of inflation. Recalculate the capitalised cost of the annual maintenance cost.