Financial proposal development and implementation

Fuel Cell Analysis

This report serves as a summary and justification of the fuel cell investment that has been studied and analyzed over the recent months and years. The executives of Acme Incorporated will find within this report that their investment in this initiative will not be for naught and that it will become quite profitable very quickly. The analysis will include a year-by-year breakdown that will account for the cost of the energy to be sold, the revenue from the sold energy, the fixed costs that must be paid, the total depreciation by year, the income taxes by year and the overall profit and loss by hear.

Highlights

A loss will be incurred the first year, but only to the tune of half a million

Losses will continue until about year six. First profit should be in year 7 and will be about $121,000

Profit will break a million in a single year by year

Profits should grow about $100,000-200,000 thereafter

Total amount lost/gained over fifteen years will be more than four million

Break-even point will occur in year 12

Fixed costs are $450,000 a year

Depreciation per year will range from $66,000 to $173,000

Depreciation will be highest in the first few years

Income tax rate is 25% a year

Tax credit in first year of 30% is worth $112,500

System fully online by year 4

Losses of about $2 million in first year but will fall sharply after that

Analysis

What follows in this section is an item-by-item analysis of the data points in the included data sheet. That analysis is as follows:

Activation of System

System will come online twenty-five percent at a time over the first four years. System completely online the fourth year.

7.5 million kilowatt hours the first year, 15 million the second year, 22.5 million the third year and 30 million every year thereafter.

Cost of Energy Sold

Cost of energy starts at six cents per kilowatt hour but will fall ten percent with each passing year

Over fifteen years, this means the rate will fall from six cents a kilowatt hour to about 1.37 cents per kilowatt hour

Revenue from Energy Sold

Over the same time period, the revenue per kilowatt hour will start at five cents per kilowatt hour

With each passing year, that rate will rise five percent per year

Over fifteen years, this means the rate will rise from five cents to about 9.9 cents.

Expenses

Admin costs are $200,000 a year. This is a fixed cost.

Maintenance costs are $175,000 a year. This is a fixed cost.

Non-electric utilities are $45,000 a year. Insurance is $30,000 a year…both fixed

Depreciation

Depreciation varies based on year due to different rates and the fact that there are three cash infusions. One is at the onset, one is at five years and the other at ten years.

Depreciation starts rather high ($93,750) and gets as high as $149k. Falls below $100k a year in year 8 and never goes back above $100k except for year 11 ($102k)

Revenue

Due to phased activation of system, revenue is only $375,000 in first year. Doubles to $787,500 in second year due to doubling of capacity. Rises to $1.2 million in year three due to another 25% going online and the first year with full capacity gets revenue of $1.7 million. Revenue grows about $100,000 a year thereafter.

Profit/Loss per Year and Over Time

About $2.5 million in losses will be sustained before profit is gained. Based on an investment of $3 million, perhaps a bigger "cushion" would be a good idea since the current margin of error is only about half a million.

Break-even point occurs in year 12

Grand Totals

Over the entire fifteen year window, here are the grand totals of relevant figures

405,000 kilowatt hours produced

$11.74 million in total cost of energy sold

$3 million in admin costs

$2.625 in maintenance costs