## Mini Case: The Power to Cool Off in Florida (Indiantown Cogeneration Project)

CFM3 Ch 10 Minicase The Power to Cool Off in Florida in \$19 only

Objective:
This case demonstrates the use of NPV, IRR, and financial ratios for evaluating a capital budgeting project.
Case Discussion:
The Indiantown Cogeneration Project involved the construction and operation of a coal-fired plant in Martin County, Florida, that produces electricity and steam. The capital cost (including interest during construction) was approximately \$770 million. Since completion, it has an electric generating capacity of 330 megawatts (net) and a steam capacity of 175,000 pounds per hour. The project sells the electric power to Florida Power & Light Company (FPL) under a 30-year contract and the steam to Caulkins Indiantown Citrus Company under a 15-year contract.

FPL’s electricity payments have two parts: one for electric capacity and the other for the electric energy that it receives.

The project’s financing consisted of \$630 million of 30-year 9% APR interest rate debt and \$140 million of equity. The debt requires equal annual sinking fund payments of \$31.5 million beginning in year 11. Depreciation is straight line to zero over 20 years. The tax rate is 40%. Other information about the project includes:

## Price and Channel Strategy

Price and Channel Strategy in \$35 Only

Purpose of Assignment

This assignment is designed to help students analyze and understand how price setting and go to market (distribution) are interrelated and affects the profitability and growth of the business. It has been designed to be a short overview on purpose: the concepts of pricing and distribution are complex and a general understanding is what should be absorbed in one week of study.

Assignment Steps

## Allocation of Purchase Price

Allocation of Purchase Price

The James company has purchased a vehicle with an appraised value of \$15,000, a building with an appraised value of \$45,000, and computer equipment with an appraised value of \$25,000. Their lump sum purchase price is \$75,000. Allocate the purchase price to each asset.

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