Powerco Electric Company

POWERCO ELECTRIC POWER COMPANY

Marcia Hirsch

April 20, 2013

Fin-310 Principles of Finance

Dr. James Young

Introduction

Environmental standards and pending legislation are making fossil fuel less attractive. Electricity provides a reliable and affordable alternative to coal fuel. Nuclear plants continue to perform more and more efficiently, operating at 90.5% in the most recent U.S. figures (2009).

New reactor designs are making nuclear power safer and more reliable. It does not emit pollution. Plants also do not require large amounts of land to be built. Electricity created by coal has only increased 9.6% in the past ten years.

Through this project we will determine whether or not it will be cost effective for PowerCo to construct a new generator. Cost analysis will guide us as to what will make the most sense dollar wise.

Below is the present value of the expected costs to construct a new generator:

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Year Computations Present Values-Outflows

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1. 25*(1/1.08 1) 23.14814

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1 ÷1.08=.92592

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25 x .92592=

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2. 28*(1/1.082) 24.005486

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1 ÷1.082=.08573

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28 x .08573=

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Total---------47.15363

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Below is the present value of the expected after-tax profits:

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Year Computations Present Values-Inflows

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3. 6*(1/1.083) 4.76299

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1 ÷1.083=.79383...