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

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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: