MANAGERIAL ECONOMICS 1615 CASE STUDY 1

ANSWERS ONLY

1) From the financial analysis of using hydro invest in wind power and according to the data
presented, wind power have a (NPV) of 2.7 million at 70% with 3.1 million/turbine, thus, 3.1-2.7
million = 0.4 or 400,000 which makes them cash flow positive.

2.)The project is $4.1 million and the cash inflows from the project are $7.2 million,
thus,
$4.1 million / $7.2 million = 0.57 or 57%

3) Since the net present value (NPV) of the Utsira project is negative and Hydro still
decides to fund the investment anyway, Hydro should required to informed the
shareholders about pros & cons behind this decision. This includes explaining how the
project aligns with the company's Corporate Social Responsibility (CSR) strategy, and
how it could potentially benefit the company in the long run.

4) Even thought the current NPV is negative, shareholder need to project in the long
term plan, and transparency is the main key in this circumstance throughout the entire
process to avoid any surprises in the futures. Both parties need to be flexible and
transparent.

5) Answer: There are a few potential infrastructural problems that might arise up,
including the network of LNG gas stations would need to be established before.
Installing the wind power turbine in the communities or villages, etc…. It crucial to take
all these issue into consideration to avoid any future surprises.