Answer:
Cumulative net present value of the project is:
= $33.5 million.
The discounted cash flow rate of return is:
= 26%
Explanation:
a) Data and Calculations:
The capital cost of the combined heat and power system = $23 million
Expected net savings per year = $10 million
Project period = 10 years
Discount rate = 12%
Annuity PV factor for 10 years at 12% = 5.650
Total PV of the cash flows = $56.5 million (5.650 * $10 million)
NPV of the project = $33.5 million
Annualized NPV = $33.5 million/5.650
= $5,929,204
Discounted cash flow rate of return = Annualized NPV/Investment * 100
= $5,929,204/$23,000,000 * 100 = 26%
