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The initial investment of this project

includes land purchase and a solar energy generating system. AAA Investment Fund has no plan to

operate it forever. Their strategy is to set up the energy plant and sell the energy to the spot market as a

long-term project. As a financial analyst of AAA Investment Fund, your manager asked you to evaluate

the project, and offer advice on which solar panel system they should adopt. The detailed information

is as below:

1. Project life is 25 years.

2. Land cost $6 million. The land is expected to appreciate by 2% per year over 25 years. Assume

your cost of land is a fair market value and you are expected to sell the land at fair market value

by the end of 25 years.

3. You have a choice of choosing fixed solar panels or rotating solar panel systems. 1 MWh (1000

kW per hour) system of rotating panel systems costs $1.45 million. Your purchased land allows

you to build a 25MWh system. A rotating solar system is more efficient in producing solar

energy with an average output of 5.6 hours per day. The maintenance cost is about 10% of the

sales revenue.

4. If you use fixed solar panel systems. 1MWh (1000 kW per hour) system costs $1.2 million.

You can build a 30MWh system as the fixed systems require less space. However, the effective

output from the average daily sunshine is about 4.5 hours. The maintenance cost is about 8%

of the sales revenue.

5. You can sell your electricity to the spot market at price of $100 per MWh in the first three years

and then the price will increase by $4 every three years. You will also get a government bonus

of $80 per MWh (e.g, Large-Scale Generation Certificate) for the first 5 years.

6. After 25 years, it will cost you $60,000 to clean the site.

7. Additional assumptions:

- The discount rate for the project is 10%.

- The tax rate is constant at 30%. Capital gains tax is 15% for land sales after 25

years (50% discount of the normal tax rate).

- Straight line depreciation of solar panel system.

- 365 days per year.

- Both systems will lose 0.75% efficiency per year.

- The project requires $100,000 working capital for liquidity purpose (It will be

refunded fully by the end of project)

Calculate NPV and IRR for both Fixed annd rotating taking into account all cash flows, recommending a preferred option.

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