Question

You have been asked to recommend one of the following power methods. Using the chart below, and an effective interest rate of 10% per year, which alternative should be selected on the basis of present worth?

(All the alternatives presented below were calculated using compound interest factor tables including all decimal places)

	Solar	Conventional
First Cost $	-14,600	-12,000
AOC $/yr	-1,200	-900
Replace Cells in year 4	-2,500	0
Replace cells in year 5	0	-1,800
Salvage Value $	+1,100	0
Life in Years	10	10

Answer 1

P.W. of cost of solar = 14600 +1200(P/A,10%,10) +2500(P/F, 10%,4)-1100(P/F, 10%,10)

P.W. of cost of solar=14600+1200*6.145+2500*0.683-1100*0.386 =14600+7374+1707.5-424.6 = $23256.9

P.W. of cost of conventional = 12000+900(P/A,10%,10)+1800(P/F, 10%,5)

P.W. of cost of conventional=12000+900*6.145+1800*0.621 = 12000+5530.5+1117.8 = $18648.3

Since the present worth of costs of conventional is lower than that of solar therefore conventional power method should be selected.