Question

0.6. Consider the following EOY cash flows for two mutually exclusive alternatives (one must be chosen): Solar Panel A Solar Panel B Capital investment, $ 7,000 13.000 Annual operating expenses, SL 2.200 2.000 Market value, $ 1.000 2.30) Useful life, years 12 The MARR is 12% per year. Determine (using FW method) which alternative should be selected if the analysis period is 18 years, the repeatability assumption does not apply, and a solar panel can be leased for $6,000 per year after the useful life of either panel is over.

Answer 1

The future worth of the panel A can be written as

$\large FW_A = -7,000(F/P,12\%,18) -[2,200(F/A,12\%,12)-1,000](F/P,12\%,6) - 6,000(F/A,12\%,6)$

$\large \implies FW_A = -7,000\times 7.6899 -[2,200\times 24.1331 -1,000]\times 1.9738 - 6,000\times 8.11518$

$\large \implies FW_A = -53,829.76 -[53,092.89-1,000]\times 1.9738 - 48,691.13$

$\large \implies FW_A = - \$ \ 205,343.02$

Now calculating the future worth of panel B

$\large FW_B = -13,000(F/P,12\%,18) -2,000(F/A,12\%,18) + 2,300$

$\large \implies FW_B = -13,000\times 7.6899 -2,000\times 55.7497 + 2,300$

$\large \implies FW_B = -99,969.55 - 111,499.43 + 2,300$

$\large \implies FW_B = - \$ \ 209,168.98$

Select solar panel A.

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