Oil powered generator with a solar power generator

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Georgia Power is contemplating replacing an oil powered generator with a solar power generator. The old generator was purchased 22 years ago and is being depreciated over its 25 years life to a zero salvage value using straight-line depreciation. The old generator has a book value of $4.5 million but could be sold today for $3.0 million. The solar powered generator would cost $10 million and be depreciated over a 3 year life using MACRS (.33, .45, .15, .07). Due to the rapidly changing technology, it is anticipated that the new generator would be sold after 3 years for $1.0 milion. The new generator is expected to save Georgia Energy $10 million a year during its 3 year life. Georgia Energy will need to increase capital by $1.5 million. The company's WACC is 10% and the tax rate is 35%. What is the project's NPV? Should the oil powered generator be replaced?

Reference no: EM13763216

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