Scribd Logo
Upload

Welcome to Scribd!

  • Tax Equity Financing and Asset Rotation

    Uploaded by

    Shofiul Hasan
    77 views18 pages
    EDP Renewables North America is evaluating its tax equity and asset rotation financing strategy and a potential new project called "Rising Stars". It analyzes keeping the current strategy, issuing new common stock through an IPO, and issuing preferred stock. The recommendation is to retain the current strategy, as it provides the highest net present value. A Monte Carlo simulation and country risk analysis using ICRG methodology find low risk for the project. The real option value of Rising Stars is estimated to provide an additional $56.8 million in cash flow.

    Original Description:

    EDP RENEWABLES NORTH AMERICA: ―TAX EQUITY FINANCING AND ASSET ROTATION‖

    Original Title

    TAX EQUITY FINANCING AND ASSET ROTATION

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    EDP Renewables North America is evaluating its tax equity and asset rotation financing strategy and a potential new project called "Rising Stars". It analyzes keeping the current strategy, issuing new common stock through an IPO, and issuing preferred stock. The recommendation is to retain the current strategy, as it provides the highest net present value. A Monte Carlo simulation and country risk analysis using ICRG methodology find low risk for the project. The real option value of Rising Stars is estimated to provide an additional $56.8 million in cash flow.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    77 views18 pages

    Tax Equity Financing and Asset Rotation

    Uploaded by

    Shofiul Hasan
    EDP Renewables North America is evaluating its tax equity and asset rotation financing strategy and a potential new project called "Rising Stars". It analyzes keeping the current strategy, issuing new common stock through an IPO, and issuing preferred stock. The recommendation is to retain the current strategy, as it provides the highest net present value. A Monte Carlo simulation and country risk analysis using ICRG methodology find low risk for the project. The real option value of Rising Stars is estimated to provide an additional $56.8 million in cash flow.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 18

    EDP RENEWABLES NORTH AMERICA:

    TAX EQUITY FINANCING AND ASSET


    ROTATION

    Presented By

    NAME ID

    Md. Safiul Hasan 31031

    Md. Kamruzzaman 31041

    Nur Mohammad Khandaker 31025


    PROBLEM STATEMENT

    Is the existing tax equity and Asset rotation


    financing strategy perfect?
    Are there any alternative financing strategy?

    The new rising star project is feasible or not.


    ALTERNATIVE COURSES OF
    ACTION

    EDP will kept its current tax equity and asset


    rotation financing strategy
    EDP will issue new common stock through the
    IPO
    EDP will issue some preferred stock along with
    common stock.
    ALT-1: ANALYSIS OF CURRENT STRATEGY:

    weighted average cost of capital is 7.008%

    NPV $16,454,094.0
    5
    IRR 8%

    MIRR 7%
    ALT-2: EDP WILL ISSUE NEW
    COMMON STOCK THROUGH THE
    IPO

    Contribution to Retained Earning


    Break Point Depreciation
    Equity Fraction

    42
    141 357 million
    0.194

    We can see that the rising stars capital investment is 30


    million (387-357) higher than break point so EDP should
    issue 30000 common stock par value of $100. Lets
    floatation cost adjustment factor is 2%
    ALT-2: EDP WILL ISSUE NEW
    COMMON STOCK THROUGH THE
    IPO

    weighted average cost of capital is 7.17%

    NPV $12,586,920.45

    IRR 8%

    MIRR 7%
    ALT-3: EDP WILL ISSUE SOME PREFERRED
    STOCK ALONG WITH COMMON STOCK

    Another alternative can be that EDP will issue


    some preferred stock along with common stock.

    weighted average cost of capital is 7.23%

    NPV $11,173,448.16

    IRR 8%
    MIRR 7%
    RECOMMENDATION:

    By analyzing the available alternatives we see


    that IRR and MIRR are same for each alternative
    but the NPV is gradually decreasing when EDP
    issue the new common stock as well as preferred
    stock. So EDP should not go for IPO. That means
    EDP should retain their current tax equity and
    asset rotation strategy because the current
    strategy increase the value of the firm with
    greater amount.
    MONTE CARLO SIMULATION
    MONTE CARLO SIMULATION
    MONTE CARLO SIMULATION
    MONTE CARLO SIMULATION
    MONTE CARLO SIMULATION
    COUNTRY RISK ANALYSIS USING
    ICRG METHOD

    The Political Risk


    The Economic Risk

    Financial Risk
    COUNTRY RISK ANALYSIS USING
    ICRG METHOD

    Component Point Max. Point


    Obtained
    The Political Risk 77 100

    The Economic Risk 43 50

    Financial Risk 39 50
    THE COMPOSITE RISK RATING
    CPFER (country X) = 0.5 (PR + FR + ER)
    CPFER (U.S) = 0.5 (77 + 39+ 43) = 80

    Risk Ratings Points Risk Premium


    Very High Risk 00.0 to 49.9 points 3
    High Risk 50.0 to 59.9 points 2
    Moderate Risk 60.0 to 69.9 points 1.5
    Low Risk 70.0 to 79.9 points 1
    Very Low Risk 80.0 to 100 points 0

    As the total composite risk score for U.S is 80 which


    indicates country risk for U.S during 2015 is Very
    low risk. So we did not add any risk premium with
    our WACC.
    VALUE OF REAL OPTIONS
    A real option itself is the rightbut not the
    obligation.
    X (cost) 385000889.2
    S (pv of future cashflow) $401,454,983.20

    r (risk free rate) 3%


    SD( sd of projrct return) 15%
    T (time) 3

    the value of the real option of new rising star


    project is 56819487. So manager can make
    additional cash flow of 56819487.
    CONCLUSION

    EDPs existing Tax equity and asset rotation


    financing strategy is perfect.
    By taking this project firms value will be greater
    by 16 million
    Country Risk is very low for this project.

    manager can make additional cash flow of


    56819487 by exercising the real option

    You might also like