Question

5. Please perform a present worth analysis to decide between purchasing solar panels for a home and not doing so. The solar panels cost $18,000 (installed), save $200/month, and can be sold for $1,200 at the end of their 10 year life. The do-nothing option is simply to pay the normal $400/month electric bill for this home. For simplicity, please calculate based on annual payments and 6% interest. Please state your choice along with its present financial benefit rounded to the nearest cent. (25 pts)

Answer 1

PW, Solar Panels ($) = - 18,000 + (200 x 12) x P/A(6%, 10) + 1,200 x P/F(6%, 10)

= - 18,000 + 2,400 x 7.3601** + 1,200 x 0.5584**

= - 18,000 + 17,664.24 + 670.08

= 334.32

PW, Do Nothing ($) = - 400 x 12 x P/A(6%, 10)

= - 4,800 x 7.3601**

= - 35,328.48

Since Solar Panels have positive PW, these should be selected.

**From P/A and P/F Factor table