Assessment Task You work in the planning and development department of an alternative energy company called Greens.

Assessment Task

You work in the planning and development department of an alternative energy company called Greens. Greens is smaller than many of its rivals but is planning to grow

by carrying out more contracts internationally. It is listed on the London Stock Exchange. They are considering two proposals, which are at early stages of planning. Your manager would like you to provide him a brief initial review of them. He has supplied you with a high-level NPV analysis which has been completed by one of the management

accountants.

Project 1 is to build a new wind farm in Australia. The energy generated will be sold to local electricity companies in the market.

Project 2 is to invest in developing a solar power plant, partnering with large Dubai company. Greens has not previously operated in the Middle East, although their chosen

partner is a large and well-established company in the solar power sector. The Dubai government is keen to increase the level of electricity generated by solar power and is

offering subsidies and other support for this project.

The calculations have been done on the assumption that Greens will borrow in order to fund the project - their current cost of debt is 7%. Greens are close to their current

borrowing limit and so will only be able to fund one of the proposed projects this way. Your manager has suggested that Greens could raise funding via a rights issue instead,

and he would like you to comment on this option. Greens' current cost of equity is 12%. Due to the uncertainties in the long-term market for energy, Greens's policy is to

evaluate projects over a maximum of 10 years. The analysis has used Greens's central assumption that the average price for wholesale electricity over the next ten years will

be $40 per megawatt.

Your manager has said he would like a clear initial recommendation on each project and next steps for Greens.