An electric utility investment has a capital cost of $60 million, a term of 8 years,...
An electric utility investment has a capital cost of $60 million, a term of 8 years, and an annuity of $16 million. What is the CRF for this investment?
Please also calculate ACC and NPV.
Homework Answers
Solution:
NPV = n*Annuity + Salvage value - initial investment
= 8*$16million + 0 - $60million = $68million
ACC (Annual capital cost) = Annuity amount - NPV /n = $16 million - $68 million/8
= $7.5million
Thus, CRF ( capital recovery factor) = ACC/NPV = $7.5million / $68million = 0.1103 Or 11.03%
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