Idea 2: Cooperation with energy provider - NPV calculation

Oliver Wyman case: Full Electrons Ahead
New answer on Dec 26, 2019
2 Answers
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Michael
Skilled
asked on Nov 26, 2019

Hi there,

I'm having trouble undertanding the "Idea 2: Cooperation with energy provider" calculation. Calculating the cost is straight forward, however I don't fully understand the NPV calculation for the revenues.

Could someone walk me through the math?

Thanks

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Antonello
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updated an answer on Dec 28, 2019
McKinsey | MBA professor for consulting interviews

Hi Micheal,
- the installation (one-off) cost per station is 40% of 750€ -> 300€
- the yearly revenue per station is 10% of 0,25 €/kWh * 20/100 kWh/km * 80% * 15.000km -> 60€
- in the entire lenght of the contract 60€ * 5years -> 300€

Actually, every 60€ got in the next years should be discounted. Therefore the NPV will not be 0€ but negative

Does it make sense?

Best,
Anto

(edited)

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Michael on Nov 26, 2019

Hi Anto, thank you very much for walking me through the logic. Yes, that makes sense to me now. Appreciate the help.

Annaelle on Dec 15, 2019

Hi Antonello, thank you for the answer. I don't understand why 15000 is divided by 12 in the formula. Can you explain please :) ?

Antonello on Dec 28, 2019

Thanks Annaelle. Talking about yearly revenue we do not have to divide by 12

Anonymous A on Aug 19, 2020

What it the 3.2 cycles/week for? Since it is not used in this question. I'm just trying to understand what it actually is.

Anonymous on Aug 19, 2020

How do we know NPV will be negative? Wouldn't that depend on the interest rate? So we just know that it will be less than the €300 and therefore lower than the cost. So perhaps, you meant negative profit?

Clara
Expert
Content Creator
replied on Dec 26, 2019
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

What usually helps is separating calculations.

1. COST: It´s a one-offper station of 300€ (40% of 750€)

2. REVENUE: It´s 60€ yearly (10% of 0,25 €/kWh * 20/100 kWh/km * 80% * 15000/12)

*NPV: 60€/yearly * 5years of total duration = 300€

Hope it helps!

Clara

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Mariyah on Nov 06, 2022

Hi Clara, Thanks for the calculation. Just to point out that your answer is correct however 15000 need not be divided by 12 as we calculate annual revenue. (If I do divide it by 12, the answer wouldn't be 60). Would you agree? Mariyah.

Antonello gave the best answer

Antonello

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McKinsey | MBA professor for consulting interviews
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