Capital Budgeting Project: Wind Energy Investment and Recommendations

This project report provides a comprehensive analysis of capital budgeting, focusing on its application in evaluating wind power investments. It begins with an introduction to capital budgeting and its significance in determining major projects and expenditures, highlighting methods like net present value and return on investment. The main body offers background information on wind power adoption, benefits for farmers, and the increasing trend of wind energy in the United States. It details the capital budgeting process, including project identification, screening, evaluation, selection, implementation, and performance review. The report then delves into managerial considerations and complications, discussing real options, growth options, and their impact on investment decisions. It presents a case study involving small wind turbines, analyzing factors such as wind speed, power generation, and financial returns. The report concludes with recommendations for capital investment, emphasizing the importance of financial practices, liquidity measures, and exchange rate instruments. Finally, it summarizes the findings, highlighting the role of government incentives and the significance of wind direction in determining the feasibility of wind power projects. The report references several books and journals to support its analysis.

Project development

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Back ground............................................................................................................................3
Capital budgeting process.......................................................................................................3
Managerial consideration and complication...........................................................................4
Recommendation in relation to capital invested....................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Businesses offer use of capital budgeting to determine significant projects and expenditures, like
different crops or facilities. To assess if the anticipated return achieves a specified benchmark,
the procedure includes evaluating the income and expenses of a program. Net present value,
return on investment, and production measures are the main capital budgeting approaches.
Capital budgeting remains the practice a business accepts to calculate possible main plans or
investments (Abor, 2017).
MAIN BODY
Back ground
In consideration of just how they impact the farmer's judgment on small windmill
adoption, this report should provide an analysis of these factors, and also 3 research studies that
analyse the economies of implementing small wind developments. For any property, farm or
company owner who installs a small generator within the size limitations of the respective laws,
the personal income tax benefit as well as state-level distributed generation apply. There are
further benefits for farmers and rural regional entrepreneurs to construct green energy systems. A
fast rising green energy option in the United States is wind power. The most noticeable trend is
in utilities that have risen by 39% yearly in the last 5 years on average (American Wind Energy
Association (AWEA)). Much of these projects belong to foreign investors. In addition to signing
deals to enable power plants on their soil, farmers do not engage entirely in the decision-making
system. These multi-million international schemes are essentially outside the remit of farmers.
Capital budgeting process
Capital budgeting is a systematic method used by the organisation for the estimation of
substantial future costs or expenditures. The decision requires the expenditure of the established
funds to incorporate, transfer, adjust or substitute capital assets. Major costs have included
acquisition and infrastructure, new facilities, renovation or demolition of existing facilities,
research and development, etc. the systematic process regarding this have been applied in the
relevant case study that is discussed below:
Project identification and generation: A plan for acquisitions is the first move in capital
budgeting. There may be different motives for investing in a firm. A new range of products could
be introduced or the current one could be extended. It can either improve productivity or

decrease manufacturing costs for the respective wind plant in respective location (BiermanJr and
Smidt, 2012).
Project Screening and Evaluation: This stage consists mostly of choosing all the right
parameters to determine whether a plan is suitable. This would be aligned with the company's
goal of maximising its stock value. The all three case are being screened and evaluated in this
method is helpful in this phase.
Project Selection: There is no way to pick an investment proposal, since different firms have
different criteria. Therefore the acceptance of an application for investment is dependent on the
requirements for choice as well as on the screening procedure specified for each firm taking into
account the goals of the investment.
Implementation: Money is invested, which executes the proposal. The numerous activities such
as the implementation of the plans, project delivery and elimination of costs are allocated within
the appropriate deadline. The administration then assumes the responsibility of supervising and
ensuring the plans are adopted.
Performance review: A correlation of the concrete answers with traditional ones would be the
final step of capital budgeting. The negative findings are recognised as well as the numerous
project obstacles are eliminated, helping to pick and execute the plans for the future.
Managerial consideration and complication
Real Options and Capital Budgeting
It also means that the expenditure must be produced but never be made. This investment strategy
cannot be taken into account, also that leadership will adjust and update its plans against
unforeseen business trends and innovations that trigger working capital to depart from previous
results. This indicates that the versatility of managers in adjusting their strategies to increasing
business and technical complexity is not being captured (Fehrenbacher Kaplan and Moulang,
2020). The concept of true options was built from the concept that corporations' equity
investments can be used as a good investment option choice, just as a financial call option offers
physical asset decision-making. Just 20,718 kWh of energy were generated by lower wind level.
This reflects a 39% power reduction as well as an 11.8% decrease in power factor. The
diminished generation corresponds to a net value of $10,329 after-tax.
The intrinsic pre-tax return figure is 7.5%, and unfavourable cash balances arise 8 years
later. The profit falls short of the investment's lifespan. This study reveals how critical it is to

have strong wind power in a small wind turbine. The value of good wind data unique to the site
must also be emphasised. Estimated wind speeds can lead to incorrect analysis of nearby wind
observations.
Growth Options
Real expenditure is frequently rendered not just for specific discounted cash flows as well as for
the financial advantage generated from progress reviews. These future options for discretionary
spending are regarded as investment opportunities. In the case of business environments, for
example, companies typically make acquisitions in design and technology that strategic thinking
themselves to just the economic value of commercialisation. Similarly, businesses typically start
with a new international market with the hope of further growth. Such economic expansion
expenditure may seem in isolation uneconomical, and may encourage businesses to seize
potential prospects for growth. The economy is also shifting dramatically with a bigger turbine.
The generator is $214,000 in installed cost (Kerler III, Fleming and Allport, 2014). The
maintenance costs of the turbine are much higher due to the extreme main shaft in the motorway
rather than the drive systems. The extra restrictions for larger, updated net metered networks
often allow the connectivity cost higher. The factory is expected to earn the REAP award and
credit program and state incentive for the taxation of federal clean energy supplies. The
inflationary benefits are far less favourable for the big generator than the smallest turbine. This
same net current worth during tax is $ 46,574, the intrinsic return on investment before taxation
6.4%, as well as the refund term is 14 years. The reduced power variable as well as the lowered
energy value obtained to the network is the key causes of bad performance.
Recommendation in relation to capital invested
1. Preserve and encourage business marking practises the Net Reliable Financing Mix for
Small plant return on equity and execution. Promote a working repo sector as a realistic
mechanism for market development.
2. In order to favour corporate liquidity throughout the bond industry, they advocate
consensual economy measures related to debt issuance interoperability, electronic trade
network growth and repo system working.
3. In order to hedge the risks of the highest macroeconomic risk, exchange rate instruments
are required. In the world, all exchange-traded and OTC instruments account for the bulk
of options turnovers. Interest derivatives in India constitute only about 1% of sales. It is

proposed here for instance that a wider variety of securities (both long and short) could
include interest rates for potential investments. Moreover, FIIs (not only constrained by
their exposure) should engage more, as this tends to establish liquidity (Singh, Jain and
Yadav, 2012).
CONCLUSION
In the last of report, it is founded that the simple case reveals that wind power now is a bad
option of capital without government incentives. In Michigan, power costs in addition to making
wind power a worthwhile investment will be appropriate at present wind deployment levels.
Wind capital are vital to ensuring a meaningful returns on wind turbines investment, and
favourable policy known as the REAP System including gross metering are crucial as stated in
Case 1, Scenario 1. They except the 25% REAP award for expense shares, investment earnings
in Task two of cases 1 is eliminated. The slow temperatures provided in the third example
revealed the value of strong wind energy, because as 39% loss in authority from of the lowest
wind speed cannot be offset except by the Net Measuring and a REAP offer and assured loan.
The value of wind direction is also illustrated in case 2 for a larger generator. Although farms
may make use of greater authority from a wind farm, the wind direction of Class 2 is not
sufficiently high to allow the greater generator to work at maximum performance. This makes
the big turbine weak investment option with moderate temperatures, although with REAP
financing and promised loans, and better net calculation to 50 kW.

REFERENCES
Books and Journals
Abor, J. Y., 2017. Evaluating Capital Investment Decisions: Capital
Budgeting.In Entrepreneurial Finance for MSMEs (pp. 293-320). Palgrave Macmillan,
Cham.
BiermanJr, H. and Smidt, S., 2012. The capital budgeting decision: economic analysis of
investment projects. Routledge.
Fehrenbacher, D. D., Kaplan, S. E. and Moulang, C., 2020.The role of accountability in reducing
the impact of affective reactions on capital budgeting decisions. Management Accounting
Research, 47, p.100650.
Kerler III, W. A., Fleming, A. S. and Allport, C. D., 2014. How framed information and
justification impact capital budgeting decisions. Advances in Management
Accounting, 23, pp.181-210.
Singh, S., Jain, P. K. and Yadav, S. S., 2012. Capital budgeting decisions: evidence from
India. Journal of Advances in Management Research.