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1、CHAPTER10TheBasicsofCapitalBudgeting:EvaluatingCashFlowsPLGroupisaholdingcompanythatownsFloridaPower&Light,Felectricgeneratingplantsacrossthecountry,thenation’slargestfleetofwindturbines,andmajorsolarpowerfacilities.Ittakesupto10yearstoacquireproperty,
2、obtainthenecessarypermits,designtheplant,arrangethefinancing,andcompletetheconstructionofalargegeneratingplant.Moreover,utilitieslikeFPLarerequiredbylawtohaveelectricityavailablewhenitisdemanded—whenpeopleturnontheswitch,theutilitymusthavetheenergyitsc
3、ustomersexpectorsufferseverefinesandotherpenalties.Thus,FPLmustforecastpowerusagemanyyearsinadvanceandmakeplansformeetingthatdemand.Makinga10-yearforecastisalwaysdifficult,butthe2008–2009recessionincreasedthisdifficultytremendously.Thetwomostimportants
4、ectorsofFlorida’seconomyarehousingandtourism.In2009thestatehadahugesupplyofunsoldhousesandwassecondonlytoCaliforniainforeclosures,whichwasdrivinghomepricesdownandvacanciesup.Also,thebadeconomywashurtingthetourismindustry.Noonecouldknowwhenthosetwoindus
5、tries—andtheretailbusinessesthatdependonthem—wouldstarttoimprove.Thatmeansnoonecouldaccuratelyforecastelectricityusageor,thus,theneedfornewgeneratingcapacity.Beforetheeconomystarteddownhill,FPLhaddevelopedadetailedcapitalbudgetfor2009–2011.Butastheecon
6、omybegantodecline,itsmanagershadmanylong,hardmeetingstoconsidermodifications.Ontheonehand,FPL’smanagerswantedtokeepconstructionontrack—it’scostlytostartandstoplargeprojectsbecauselargecancellationfeesareimposedifcontractsarecanceled.Moreover,FPLwantedt
7、omoveaheadwithitswindandsolarprogramsandthusprovidemore“green”energy.Ontheotherhand,thecapitalmarketsweredryingup,makingitdifficultandexpensivetoacquirethefundsFPLneededtofinanceitscapitalbudget.Evenworse,ifitchargedaheadandcompletedplantsforwhichthere
8、wasnodemand,thenitwaspossiblethatinterest,depreciation,andmaintenancecostscouldliterallydrivethecompanytobankruptcy.379380Part4:ProjectsandTheirValuationIntheend,managementcompromised—theycutbackontheprojectsthatwereeasiesttodeferbutwen
