Question

An international company is economically evaluating an existing electrical water heater with an array of solar panels. The net installed investment cost of the panels is $1,350. Based on an energy audit, the existing water heater uses 210 kilowatt hours (kWh) of electricity per month at $0.15 per kWh. It has been estimated that starting from the end of year three, expenses will increase by five dollars every coming year for the next five years, after which the costs will continue to increase by six dollars every coming year until the end of year twelve of the project lifetime. After that there is no operating costs, because of maintenance, that will be provided for the two coming years. The management believes that all this long maintenance service will cost $150 and will be paid by the end of year 14.

a. Draw the cash flow diagram if the solar panels have a lifetime of 14 years?

b. What is AW of this project at MARR=6% if the solar panels have a lifetime of 14 years? Explain in your own words the meaning of AW for this project.

210 KWh

Answer 1