# Financial Modelling and Ethical Issues in Finance - Essay Sample

2021-07-20
4Â pages
836 words
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Middlebury College
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Essay
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Energy plants are capital intensive, and for that reason, they often need careful analysis to make the most appropriate. It requires massive capital investments, and without justification on how those investments will be recovered, an appropriate decision cannot be made. Additionally, for some projects like nuclear plants and related projects, there is another key consideration other than capital investments. The plans come with serious safety and environmental concerns, and for that reason, they are looked into more deeply than just doing financial analysis and determining exclusively on that basis on whether to go on with the project or not.

Financial Modelling and Analysis

The Queensland State Owned company is in the move to fund and construct a mega nuclear plant in the town. The company has gathered several data and information to aid in the analysis of the project. The projects total construction costs amounts to \$5.85 billion between 2019 and 2024. After considerations of all expenses, including taxes and depreciation, he project will give out a profit of no less than \$247 million subjects to a 2.75 percent adjustment in inflation rate annually. That profit after tax represents a 4.3 percent return on investment over a period of 54 years after which the project will stop.

Over the 54year period of operation, there is no stated salvage value, but there is also an extra closing cost to the project of one billion dollars. That means as the reject nears closure, the company will have to plan on how to finance the capital costs which is way above the annual profits realized. All the values as shown in the spreadsheet are estimated at a 2.5 percent adjustment for inflation, which essentially means some expenses shall grow the same way revenue may be higher over the same period. Based on the calculation, the project will take a total of 26.55 years to pay back its investment capital. Before running for a profit for the remaining years. However, as noted above, the project will incur an extra one billion dollar cost during the closure, which should also be factored into the project.

Ethical Issues Surrounding Nuclear Power.

Nuclear power plants come with serious ethical concerns. First, it emanates from the danger they pose not just to humanity but the overall environment. Nuclear power is credited for being for being sustainable, lack of greenhouse emissions and has fewer wastes compared to other forms of energy. On the other hand, the energy is not green since it involves disposal of radioactive materials and other harmful substances to the surrounding environment.

Not just that, the threat of catastrophic accidents is often real as witnessed in Chernobyl disaster in Ukraine and Fukushima power plant in Japan. The adverse effects of such accidents including food poisoning, public health concerns, and mutations among several others. With that in mind, such projects have to be carefully analyzed before anyone seeks to invest in them. It, therefore, comes down to the investment firm to disclose as many facts as possible, and prepare appropriately to avert any potential accident. Disclosure of everything enables to formulate essential safety regulations and violations.

Even though nuclear energy is considered sustainable that helps reduce the impact of greenhouse emissions, it emits highly harmful radioactive substances, does substantial damage to the environment and poses a severe public health concern, particularly when accidents happen. As demonstrated in the Chernobyl nuclear power plant accident, such plants have far reaching impacts on public health not just for the surrounding individuals, but even those far away. The Chernobyl effects were felt across the Soviet Union and other neighboring countries, and still, several efforts are credited for controlling what otherwise would have been a global catastrophe. With all these ethical concerns in mind, it is only fair to emphasize that investors in the sector need improve nuclear safety programs, enhance risk management, reveal all issues concerning the investment, and where possible, develop other methods of energy that are less harmful in all circumstances.

Recommendations and Conclusion

A project who payback period is less than half the period of its useful life is worth investing in. Therefore, the Queensland State owned company should go ahead and invest in the project. He project is likely even to generate more revenue, should it be made to be more efficient and operate at 95 percent it is apparently expected too. Similarly, efficiency means even the energy it shall consume to produce other energy can be reduced. It shall also help in curbing costs like those of depleted uranium and other harmful substances. However, as discussed in the ethical concerns above, it must dig all the facts, develop appropriate risk and safety measures before going ahead with the project. It is worth noting that risk management and security measure are also capital intensive, but to will still be accommodated given the long life span of the project. The project will be hosted in an area apparently supplying people with water, and as such a thorough study of the impact and the necessary methods to minimize such effects should be put in place before commencement.

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