This model simulates the cash flow of a utility that is considering purchasing a hydroelectric power plant versus a thermal power plant. Both projects have an initial capital cost to build the facility with the hydropower plant costing 5x more than the thermal plant. Operating costs apply continuously over the life of the plant and are increased by the Inflation_Rate. The thermal plant operating expenses are significantly higher due to its use of fuel. Revenues are generated by electricity sales. The hydropower facility can generate 2x the power than the thermal plant.
The utility could invest in other options that return about 10% annually. In order to see if either investment is worthwhile, the utility needs to determine if the internal rate of return exceeds the alternative 10% investment strategy (see Discount Rate).