Question

You can purchase solar modules today for $4000 per module. The module will provide benefits worth $600 a year and had an expected life of 15 years. The solar prices are expected to drop by 10% each year for the next 10 years. Should you purchase the solar module today or wait to purchase?

Answer 1

Note-There is lack of information given in the question, if full information of required rate of return is given then solution will be more practical and provides for logical framework i.e decision making will be more easy.

Purchase cost of 1 solar module today = 4000

Benefits cost=600

Total cost =4600

Value of 1 module after 10 years will be=4000 - 10% (for 10 years)

=1394+600=1994

Conclusion=wait for 10 years to purchase the module net benefit will be of 2606 dollar.

If required rate of return given then future value shall be computed for all amount of dollars.