Question

Your Uncle who lives in Kintinku Ward in remote Singida region is a typical entrepreneur. He owns a retail shop selling general merchandise products. He however plans to buy a TV set and a satellite dish so that football funs can come to his place to view soccer matches at a fee. He also plans to sell cold drinks to customers in general. He is aware that electrical power will be required though his village is not served by TANESCO. To solve this power problem, he has two options.

Option A requires him to go solar. A 150Wp solar PV system is needed. This system is capable of powering ten direct current fluorescent light bulbs, a radio cassette, a 21-inch colour television and a video player (the system would alternatively also power mobile phone charging facility and hair cutting saloon would suffice. Such a solar PV would require the following components and expenditures:

Item	Amount	First cost (TAS)	Annual cost/revenue (TAS)	Annual cost/revenue increase per year TAS	Life span - Years	Salvage value (TAS)
Solar Module 75W	2	1,160,000			15	100,000
Charge regulator 20W	1	120000			15	-
Solar batteries	2	200,000			3	20,000
Inverter DC/AC, 500W Trace	1	850,000			3	-
Energy saver bulbs 12VDC	10	150000	75,000	5,000	15	-
Installation & wiring materials, SET	1	150000			15	-
Transport charges	1	200000
Labour charge, technicians for installation	1	200000
Maintenance costs			15,000	1,200	15	-
Expected revenue			7,000,000	500,000

Option B would need purchasing 1 KV diesel generator. Such a generator would require the following components and expenditures (See table below):

Item	Amount	First cost (TAS)	Annual cost/revenue (TAS)	Annual cost/revenue increase per year TAS	Life span - Years	Salvage value (TAS)
I KVA generator	1	1,000,000			8	100,000
Diesel	720 litres per annum.		1,152,000	200,000	-	-
Maintenance costs			50,000	10,000
Revenue			6,000,000	400,000

Answer 1

Option 1:

Where,

Initial cost = Sum of all the equipments initial cost of 15 year life multiplied by their amouts.

Annual revenue = 75000 + 700000 = 7075000 and increasing by 520000 each year (i.e.5000+15000+500000)

Salvage value = Multiplied by amount

CF each year = Annual revenue + salvage value -Initial cost

Discounting CF to persent worth by assuming a rate of 10%.

$PW = \sum \frac{CF_{n}}{(1+R)^{n}}$

Years	Initial cost	Salvage value	Annual rev	CF	Discounted CF
0	25490000			-25490000	-25490000
1			7075000	7075000	6431818.182
2			7595000	7595000	6276859.504
3			8115000	8115000	6096919.609
4			8635000	8635000	5897821.187
5			9155000	9155000	5684534.713
6			9675000	9675000	5461285.273
7			10195000	10195000	5231647.015
8			10715000	10715000	4998626.579
9			11235000	11235000	4764736.742
10			11755000	11755000	4532061.367
11			12275000	12275000	4302312.616
12			12795000	12795000	4076881.313
13			13315000	13315000	3856881.216
14			13835000	13835000	3643187.903
15		200000	14355000	14555000	3484351.279
PW					49249924.5

Now, computing the 3 years of life equipments separately, we get the following PW

Years	Initial cost	Salvage	CF	Discounted
0	1250000		-1250000	-1250000
1				0
2				0
3		40000	40000	53240
PW				-1196760

Now adding both the PW together, we get the PW of the option as,

Total PW

48053164

Option 2;

Where, initial cost = Sum of all the equipment's initial cost

Revenue = sum of all equipment, increasing by the increasing cost of all the equipment (i.e. 200000+10000+400000)

CF = Revenue + Salvage - initial cost

Discounting by 10% - $PW = \sum \frac{CF_{n}}{(1+R)^{n}}$

PW = 47246278.87

Year	Initial cost	Revenue	Salvage value	CF	Discounted CF
0	1000000			-1000000	-1000000
1		7202000		7202000	6547272.727
2		7812000		7812000	6456198.347
3		8422000		8422000	6327573.253
4		9032000		9032000	6168977.529
5		9642000		9642000	5986923.397
6		10252000		10252000	5786986.731
7		10862000		10862000	5573923.48
8		11472000	100000	11572000	5398423.404
PW					47246278.87

Thus Option 1 has higher PW, thus we go with option 1.