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Financial and Environmental Impact Analysis of Sustainable Retrofitting Case Solution & Answer

Financial and Environmental Impact Analysis of Sustainable Retrofitting Case Solution

Q. 1

The discount rate is the yearly rate. DR is calculated by reducing the future expected cash flows as the value FCF is not equal to the present value of the same amount, due to the time value of money. On the other hand, the company uses annual growth while projecting historic data and future profits(SCHMIDT, 2013).

The discounting factors help the company in estimating the present value of FCF. Whereas the discount rates of every company differ from each other based on company capital structure. The assumption of 9.5 taken by linimer is the best fit for the company, because the discount rate is assumed based on indecision of future utility prices.

To formulate the discount factor, Liminer first goes for the level of confidence on FCF. The confidence interval explains that the company is 90% confident that the FCF of $111, and PV will be decreased to $100 due to inflation in the country.(Kirsch, 2014)

The company should use a discount rate that fits as per its capital structure and should also follow the historic data like the yields on treasury bills. The company can use COC as a discount rate to compute the FCF into PV.

The case does not provide any rfr and market return data but on the real grounds, we assumed 9.5%, which was almost near to reality. Linimer followed the historic prices and data, which was used to compute the past year’s inflation. So, If the Discount rate is higher than the inflation, then we will take the discount rate higher than the inflation rate to cover that inflation

The company should consider the discount rate which hasa high probability and the chances of high occurrence. In computing the company’s operating expense and restructuring plan; it is a bit acute to find the discounting factors and forecasting. The higher the discounting factors the lower the future operating expense, otherwise the company will reject the investment chance.

So, projects which have positive PV can be converted into negative, and the management will reject the project. In contrast,a low discount rate will increase the company’s return.

Q:2

BTB development estimated a 1.5% of price increase in the rate of wastewater, which seems-suitable for BTB, because the company has previous year’s data, which could be used to find the previous year’s inflation rate. BTB can review CPI before increasing any rates.

Presumptions that BTB’s use ought to be founded on best gauges just as the business practices oughts to be trailed by the organization. At the point when the acceleration rate increase from 1.5%, the water reserve funds will increase and the returns from the Double flush toilets, decreased.Stream shower head and spigots will support. (Punjawani, 2006)

Then again, the organization accepts a lower than 1.5% increase rate as it is expected that the profits from water reserve funds will decrease. Apart of wastewater heightening; the BTB advancement firm expects the support cost to be increased at the rate of 3.5%, which would additionally suit the organization.

Currently, the inflation rate of maintenance cost is higher than 3.5%, at which point, return from CFL Bulbs will increase;therefore, it would turn the negative NPV to a positive NPV, which would make the task great for the organization. Additionally, the maintenance cost of water, gas, and power utilities will increase at various rates, as demonstrated in the estimation.

The changes in the increasing rates will bring vulnerability to incomes, which demonstrates that an increment in rate will lead towards better yields for the organization. The expansions in gas inflation rate just as the high productivity heaters task will create positive NPV when the organization will have an advancement with the undertaking…………………….

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