Sonnedix Solar Solutions Case Solution
The return on investment (ROI) will be 3.29% during the first 2y of operation, which is greater than the ROA. It appears that the asset is making more profit by financing in a new project, such as: project-related costs and has decreased as compared to the assets already used by Sonnedix, but 3.29% is still not high enough to rely on this project. On the other hand, compensate(ROCE) is much higher than ROI and ROA, which is a point of relief for the project financers who can strongly discuss this measure even if the ROI and ROA are low.
Q-1: Based on information in the case, prepare 2 sets of financial statements for the Board.
- A set of semi-annual financial statements modelled over 20 years of operations
- A set of monthly financial statements modelled over the first 12 months following the Commencement of electricity generation assuming that construction of the Grasse Project commences at the beginning of October.
Based on the information provided in the case and opinions; two different financial statements have been prepared, including a monthly income statement, a balance sheet, a 1 year cash flow statement and an annual income statement, balance sheet, and cash flow statement for a period of 20 years.The Grasse Project commences calculations sections shows the data of twelve months of four different regions, i.e. Grasse (France), Milan (Italy), London (UK) and Zamora (Spain). The total Value is Calculated by the Total Days of the Month * by the Total End month Value of the Project. And for the Year 1 the total Value of all the four Countries came 4840* 365 = 1769885. For more detailed analysis kindly refer to the Grasse Project Commencesin the Excel Sheet.
In Exhibit 4, the total debt to Maturity is 18 years. Interest rate is 6% yearly, tax rate is 33.5%. Monthly tax rate is calculated as 33.5%/12=2.79%. Additional tax of 42000 is calculated as 7000*6= 42000. Monthly Additional tax rate was calculated as 42000/12=3500. Tariff including the subsidiary is 0.42. Euros and the annual Operating Cost is 41500.Construction Contract that included land acquisition and contingency is 23,440,000 Euros.
The total Engineering, Procurement, and Construction at 10% is calculated as 23440000*10%= 2,344,000. Financial costing cost is 521180, and the interest during the construction is 318962. Cash at the beginning was 275000,but in the end; the total financing was calculated after adding the Construction Contract, which further included land acquisition and contingency. The calculated amount were 23,440,000, 2,344,000, 521180,318962 and 275000= 26,899,142 euros.
In input file all the Project Related Information is written like the debt of the firm is 80% and its equity is 20%, with 3.6% construction rate, 2.50% contingency rate and the requirement of an additional amount of 1300,000. IRR at the beginning was 15%, with an interest rate of 6% annually. The Total tariff is 0.42,Operational Tax is 0.50% and the Capacity tax is 7000. First of all, I calculated the Income Statement (Monthly). For Revenues, I first calculated rate per Watt-Hour, for which I first calculated per watt hour as 13.5/100=0.135*1000=135PWH. Watt Capacity Utilized in the Grasse Project was 95108, which I had calculated earlier in the Grasse Project Commences. I multiplied the Rate of Watt Hour with watt hour Capacity Utilized, resulting in the revenue for the month of January, i.e. 12839580. And in the same way, other months’ revenues were calculated. The Operating Cost was 41500, but as I was preparing the monthly income statement for which I divided 41500/12 = 3458, which were same for all the months. Revenues –Operating Cost =12836122 (EBIT) and other tariff and subsidies for the month of January was 40. And I added it in the EBIT of the first month (January) to get the Net Income of 12,836,162, and the net income of all the months were calculated using the same method.
In the Monthly Balance Sheet, firstly all the current assets were taken from the monthly cash flow statement, which was 12,752,820, with the fixed assets of 26899142, which were taken as the mix of both Debt and Equity of 80% and 20%, respectively. Retained Earnings were taken as the Net Income Figure of 12,836,162. And the Total assets and Total Liability were 39,735,304 for the Month of January.After that, I calculated the 20 years’ Income Statement, Balance Sheet and Cash Flow Statement as well, for which I made my calculations based on Semi -Annually Analysis. Then I proceeded with the assumption of 0.069% growth after 1 year, in the firm’s revenues. This is why, the revenue in the half year is 120228640. I divided the Operating Cost which was 41500, by 2, because I am conducting a semiannual analysis, which gave me the result of the operating cost of 20750. And the net income for 0.5 or till July is 120,202,106.In the same way, all the calculations were done based on the information provided.
Q-2: Prepare a pitch deck with your recommendation for the investment in this solar plant. If you recommend the investment, please analyze how delaying (i.e. construction starts at the Beginning of May) can benefit or not. If you do not recommend the investment, please include in your analysis what decisions you could make to make this a profitable investment.
On the basis of the DCF Calculations made; the firm is recommended to follow solar plant execution. Implementation can be viewed in two different conditions, including: construction costs incurred at the beginning of the project and the Starting. Although, the Net Present Value in both the cases, before and after the complete valuation, is positive 484, 938, 6988, which accounts for the financing size.
Based on DCF’s Calculation; the Firm should finance in the project as it is has good NPV in both the cases, which shows that it would be profitable for the firm and the growing customer. A further calculation of DCF (modified), (see excel sheet) is performed, on the basis of which, the Firm’s IRR increases from 15 % to 372%, which indicates that the firm should start financing..............................
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