Combined-cycle power plants use two combustion turbines to produce electricity. Heat from the first turbine’s exhaust is captured to heat water and produce steam sent to a second steam turbine that generates additional electricity. A 968-megawatt combined-cycle gas fired plant can be purchased for $450 million, has no salvage value, and produces a net cash flow (revenues less expenses) of $50 million per year over its expected 30-year life.
(1) If the hurdle rate (MARR) is 12% per year, how profitable an investment is this power plant?
(2) What is the simple payback period for the plant? Is this investment acceptable?
[PW (or FW) method, and payback period method]
