The operating costs in our case study are straightforward.
We have one O&M contract with a fixed annual fee of $1.5m per annum. In reality, operating costs for any business, even a solar plant, will be more involved than this. However, the modelling of operating costs will be mostly a repetition of what we are doing here for different cost categories.
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Issues to consider with operating costs.
Please skip reading these if you want to get stuck in without further guidance than the case.
- The case specifies $1.5m per annum, payable monthly. Our model is quarterly, so we'll assume equal quarterly amounts in our income statement.
- We'll deal with the working capital implications next, so for now, let's only link up the income statement - knowing that this will leave our balance sheet not balancing.
- The $1.5m is index-linked. We will need to apply inflation in line with US CPI. We will need to model indexation so that it's applied annually on the anniversary of COD. We have not yet done any work on indexation, so the best option here will be a placeholder until we can deal with indexation.
- We will need to sign-switch Operating costs before adding them to the income statement.
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