This is a classic profitability and breakeven analysis case requiring candidates to evaluate a capital investment decision using payback period analysis. The key challenge is identifying that the recommendation hinges on coal price volatility—the project meets the client's criteria only if coal prices exceed $87.50/ton on average over the 5-year period, which historical data suggests is plausible.
You are a consultant who has been engaged by Sunshine Power, owner of a coal power station on the Sunshine Coast of Australia. Six year’s ago Sunshine Power commenced a pilot project with SunSteam, a solar tech company. SunSteam technology allows your client to reduce the quantity of coal it consumes by using sunlight as an additional heat source.
The $3.5M AUD pilot, involving one SunSteam array, experienced many technical difficulties at first but has just broken even. Recently, SunSteam proposed to expand the pilot by constructing four additional SunSteam arrays. Your client has very specific project investment criteria and is not sure if they should accept the SunSteam proposal.