A Green Winter: The

Case of Proposed
Jiminy Peak Mountain
Resort Wind Turbine
Team 2 Presentation
Case study Description

• Jiminy Peak Opened in the Berkshire Mountain of western

Massachusetts in 1948.
• The resort operates in four seasons offering skiing, mountain
biking, and other outdoor gaming activities.
• Covers an area of 170 acres and has 45 ski and snowboard
trails, three terrain parks and nine lifts and a high speed six-
person chairlift.
• The company has a corporate mission to protect the
environment.
• Jiminy Peak CEO is concerned about high consumption of
electricity.
• Jiminy Peak CEO is interested in installing a wind turbine at
the top of the mountain to reduce the high expenses
incurred on electricity.
 Process of deciding about the
investment on any particular asset or
project is called Capital Budgeting.

Capital
Budgeting Techniques of Capital Budgeting

• Net Present Value Method (NPV)

• Internal Rate of Return Method (IRR)
• Cash Payback Method
 • NPV method is based on the concept of time value of money.
• Under this method the net future cashflows are discounted to their
present value and this value is compared with the investment that
needs to be done.
• If the difference between the Present value of Net Cashflows and
Capital investment planned is Zero or positive, then we can accept the

Net Present offer else reject it.

• Formula of NPV:

Value – • n
• NPV=∑​R​​t/ (1+i)^t
NPV • t=1
• Where : Rt​=Net cash inflow minus outflows during a single period t
•  i=Discount rate or return that could be earned in
alternative investments
• t=Number of timer periods​
 Data Figures
Estimated total purchase and installation costs $3.85 million

Values Loan Amount $3.15 million

considered for Renewable Energy Trust Fund Grant $662,000

the proposed
Annual Cost Savings 2.4 million kWh
Sales Excess Elelctricity/year $172,000
case study Cash flow from opening earlier/year $95,000
Wind Turbing Maintenance/year $81,000
Income Tax rate 38%
 Items Amount Duration Total Amount
Annual Cash Flows      
Annual Cost Saving (Power) $ 384,000.00 25 $ 9,600,000.00
Net Present Value Sales of excess electricty $ 172,000.00 25 $ 4,300,000.00

in our Case Study Cashflow from early opening

Inflow from Sale of credit
$
$
95,000.00
166,667.00
25
25
$
$
2,375,000.00
4,166,675.00
Tax Credit ( 10 years ) $ 46,000.00 10 $ 460,000.00
Sum of All Future Casflows- A     $ 20,901,675.00

Annual Expenses      
Maintance Cost $ 81,000.00 25 $ 2,025,000.00
Intersest Expense ( 10 years ) $1,297,568.20   $ 1,297,568.00
Sum of All Future Expenses (Pre Principal Payment)- B     $ 3,322,568.00
Net Cashflow before Tax - C= (A-B)     $ 17,579,107.00

* Tax Shield Total Tax Outlay @ 38%     $ 6,680,060.58

benefit is Total Cashflow After Tax - D     $ 10,899,046.42

Total Principal Repayment - E     $ 3,150,000.00

calculated at 38% Total tax shield Benefit - F

Sum of Future Cashflows G= (D-E+F)
 
 
 
 
$
$
1,260,839.66
9,009,886.08
Present Value of FV @ 6% H     $ 4,243,183.45
Present Cash Outflow - I     $ 3,188,000.00
Net Present Value J= (H-I)     $ 1,055,183.45
 • It is the rate at which all the future cashflows
will become zero when discounted at this rate.
• If the IRR is equal to or more than required
rate of return than accept the offer.
• Reject the proposal when the internal rate of
Internal return is less than the required rate of return
(Discount rate).
Rate of • Formula for IRR Factor = Capital Investment /
Net Annual Cash Flow
Return • Please note that above formula can be used in
case of even Cashflows, if the cashflows are
(IRR) uneven then hit and trial method is used
 IRR in our Case Study
• Discount rate given was 6% 8.9312%
Year Future CashFlow PV of FV
• We need to find the rate at which Cashflows become 1 $ 377,258.48 $ 346,327.43
equals to Cash Outflow 2 $ 522,186.66 $ 440,069.75
3 $ 353,945.43 $ 273,829.31
• As per our Calculation 8.93% was the rate at which 4 $ 249,741.80 $ 177,371.05
Cashflow became equivalent to out initial investment 5 $ 242,540.36 $ 158,133.32
of $ 3188000 6
7
$
$
159,937.29
78,869.68
$ 95,727.56
$ 43,335.64
• Since the IRR calculated is 8.93% > 6%, hence the 8 $ 69,007.72 $ 34,808.13
proposal is acceptable 9
10
$
$
58,401.26
46,994.09
$ 27,042.89
$ 19,976.62
11 $ 456,733.54 $ 178,233.58
12 $ 456,733.54 $ 163,620.38
13 $ 456,733.54 $ 150,205.30
14 $ 456,733.54 $ 137,890.12
15 $ 456,733.54 $ 126,584.64
16 $ 456,733.54 $ 116,206.09
17 $ 456,733.54 $ 106,678.47
18 $ 456,733.54 $ 97,932.00
19 $ 456,733.54 $ 89,902.65
20 $ 456,733.54 $ 82,531.62
21 $ 456,733.54 $ 75,764.94
22 $ 456,733.54 $ 69,553.04
23 $ 456,733.54 $ 63,850.46
24 $ 456,733.54 $ 58,615.42
25 $ 456,733.54 $ 53,809.60
Total $ 9,009,885.87 $ 3,188,000.00
 Cash Payback Period
* All values are in Dollars
Particulars Cashflow
The cash payback period refers Total Capital Investment = Project Cost - Grants 3,188,000.00
to the amount of time it takes to 3850000 - 662000  

recover the cost of investment Cost Saving = 2.4 mkWh * 0.16 384,000.00

Energy Sale 172,000.00

Sale of Energy Credit 166,667.00

Profit from Early opening 95,000.00

Tax Credit 46,000.00

Maintenance Cost (81,000.00)

Formula:
Yearly Cash Flow 782,667.00
   
Cash Payback Period = Shorter the payback Payback Period = Capital Investment/ Net Annual Cash
Cost of Capital Investment period more attractive the Flow 4.07
÷ Net Annual Cash Flow investment Converted to days 4 years and 27 days
 Environmental factors : Disadvantages

• Unreliable source of energy – When the wind is low turbine stops there won’t be any energy
generation.

• Risk to the vertebrates: Natural habitat for birds and bats will be at risk as the enormous blades
might become a reason for their reduction in numbers if not sited or placed properly.

• Initial investment is high – Setting up the wind power plant is a costly affair.

• Thunderous noise: Gigantic wind turbine can be very loud and may disturb the local
community.
 Environmental factors : Advantages

• Renewable source of energy - Wind is an Inexhaustible energy. The energy does not stop
or perish like other natural fossil fuel such as oil and gas.

• Pollution Free and reduction in Global Warming – Wind Turbines do not emit any gases
that harm the environment nor Wind Turbines do not require water to cool down.

• Cost-Efficient Source of Energy - Cheapest natural energy source. Acquires less space to
set up.

• Employment Generation – Generates a large number of Labour during the construction

of wind power plant.
 Social Factors that are pertinent to the wind turbine feasibility :

• Road congestion: Transportation for the raw material used in the construction may add to the road
congestion.

• Hindering the peace: Huge structure needs regular maintenance which will be cause disturbance for
inhabitants.

• Unforeseen risks: Sustainability of such a huge structure on a mountain may be risky for any unforeseen
circumstances.

• Because it is a clean energy source, wind energy reduces health care and environmental costs associated
with air pollution
 Conclusion
• Wind energy is the cheapest form of energy and does not pollute the
environment in anyway.
• Social factors may be a matter of concern but for a very limited span
of time.
• The Net Present Value (NPV) of all the discounted cash flow is $1,055,
183.45
• An IRR value of 8.93% > 6% (discount rate)
• Payback Period of 4 years and 27 days only.
Recommendations
• Considering all the financial,
environmental, social factors we
recommend that Jiminy Peak
should go ahead with the
project of installing a wind
turbine at the mountain peak
and earn more profit that it can.