Question

You own a home, and are sick and tired of paying the power bill each month ($150/month incl. taxes). You have done some research on solar panels, and have decided to explore the economic feasibility of the project. After obtaining several quotes from qualified contractors, you determine that on average, a system that offsets 100% of your power needs will require an up-front investment of $20,000 (all-in cost). The expected lifespan of the equipment is +25 years, and electricity rates are expected to rise 5% per year forever. You only expect to live in the house for 10 years, and your other option is to invest in the stock market at an annualized return of 8%.

Which investment option offers the better return?

Answer 1

The solution is as follows:

We can solve this question using Financial Calcula. CMPD Set: Begin / End N: Number of periods 1% : Interest per period PV: Present Value PMT: Amount of each annuity Fri future Value. Now, CMPD Set: Begin na 10x 12 = 120 10% = T(1•08 = 1.05) "(I = 12 - 17X100 =0.235033079 PVA SOLVE 15705.25556 PMT= -150 FV=0

Depreciation of = 20000 Solar Panel equiment ouvre 10 years x 10 25 = $ 8000 Value of equipment at the end of 10 years lice. Salvage Value ) - 20000-8000 = $12000 Now, CMPD Set: Not Applicable na 10 17. - 8 PV. SOLVE - 5558.32 1857 PMT= 0 FV- 12000 So, Net Outflow of the equipment is pwechased today = Net Outflow-Present Value of Salvage - 20000 - 5558.321857 - $14444.67814.

L : Net benefit from purchasing solar panel equipment = $ 15705.26-214441.68 $ 1263.58 .. Investing in solar panels will offer you better betw retwen lie", net benefit of $1263.58 in comparison to power bill payment each month for 10 years. Over