J***@eskom.co.za

2007-04-05 09:53:31 UTC

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Supose a complany develops a new power plant. The construction cost is 100Raw Message

million $ payable on the 1 January 2008. The current maintenance cost s are

8 million $ per annum plus 2 million $ per 1 million units of electricity

consumed. Assume the quantity of Electrical produced is the same as the

quantity consumed. The consumption is 1 million units per annum beiinning in

2008.

Company X borrows the full amount for the construction cost as well as the

the other expenses exceeding the income at a rare of intrest of 5 %per

annum. The debt is paid with the income exceeding the expenditure. Assume

all annual costs and income are paid at the end of the year. Ignore any

taxes.

Calculate the price per unit of Electricity to enable company X to break

even over a term of 50 years starting on the 1 of January 2008, assuming the

power plant is worthless after 50 years.