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Idea 2: Cooperation with energy provider - NPV calculation

Oliver Wyman case: Full Electrons Ahead
New answer on Dec 26, 2019
5.8 k Views

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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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)

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

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

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

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.

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?

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

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.

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