Question

A company is investing in a solar panel system to reduce its electricity costs. The system...

A company is investing in a solar panel system to reduce its electricity costs. The system requires a cash payment of $110,174.60 today. The system is expected to generate net cash flows of $10,430 per year for the next 35 years. The investment has zero salvage value.

The company requires an 8% return on its investments.

1-a. Compute the net present value of this investment. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your present value factor to 4 decimals.)
1-b. Should the project be accepted?

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Answer #1

>> Present value of future annual cash inflows = $ 10,430 * PVIFA ( 8 % , 35 Years )

>> Present value of future annual cash inflows = $ 10,430 * 11.6546

>> Present value of future annual cash inflows = $ 121557.50.

>> Net Present value = Present value of future cash flows - Initial investment

>> Net Present value = $ 121,557.5 - $ 110,170.6

>> Net Present value = $ 11,387.

>> Net present value is positive, so the project can be Accepted.

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