Technology Maturation. Green Futures operates a solar panel power generation fac
ID: 1093231 • Letter: T
Question
Technology Maturation. Green Futures operates a solar panel power generation facility in Florence, Alabama. The current field generates 10 million kilowatt- hours per year, but every year production drops off by 1 million kilowatt hours, as dust and droppings accumulate on the panels. Replacing the panels right now with the newest technology panels will increase output to 15 million kilowatt- hours, which will then also drop off by 1 million kilowatt hours per year. A new set of panels costs $1.5 million installed. In two years, an even newer panel will be available, with 18 million kilowatts output for only $1 million installed. Green futures sells electricity for $0.08 per kilowatt hour. When should the panels be upgraded? Do an analysis over the next 10 years. Use a discount rate of 18%
Explanation / Answer
As the Question requires analysis for only 10 years and hence the same is done
Amounts ( in Million Dollars)
Current
Newest technology panel
Even newer panel in 2 years
New technology panel in year 0 & then Even newer panel in 2 years
Year
Kilowatts produced( In Millions)
Rate per Kilowatt
Cash Flow
PV Factor @ 17%
PV of cash Flow
Kilowatts produced( In Millions)
Rate per Kilowatt
Cash Flow
PV Factor @ 17%
PV of cash Flow
Kilowatts produced( In Millions)
Rate per Kilowatt
Cash Flow
PV Factor @ 17%
PV of cash Flow
Kilowatts produced( In Millions)
Rate per Kilowatt
Cash Flow
PV Factor @ 17%
PV of cash Flow
0
1
0
-1.2
1
-1.2
1
0
-1.2
1
-1.2
1
15
0.1
1.5
0.854701
1.282051
25
0.1
2.5
0.854701
2.136752
15
0.1
1.5
0.854701
1.282051
25
0.1
2.5
0.854701
2.136752
2
14
0.1
1.4
0.730514
1.022719
24
0.1
2.4
0.730514
1.753233
14
0.1
1.4
0.730514
1.022719
24
0.1
2.4
0.730514
1.753233
3
13
0.1
1.3
0.624371
0.811682
23
0.1
2.3
0.624371
1.436052
30
0.1
2
0.624371
1.248741
30
0.1
2
0.624371
1.248741
4
12
0.1
1.2
0.53365
0.64038
22
0.1
2.2
0.53365
1.17403
29
0.1
2.9
0.53365
1.547585
29
0.1
2.9
0.53365
1.547585
5
11
0.1
1.1
0.456111
0.501722
21
0.1
2.1
0.456111
0.957833
28
0.1
2.8
0.456111
1.277111
28
0.1
2.8
0.456111
1.277111
6
10
0.1
1
0.389839
0.389839
20
0.1
2
0.389839
0.779677
27
0.1
2.7
0.389839
1.052564
27
0.1
2.7
0.389839
1.052564
7
9
0.1
0.9
0.333195
0.299876
19
0.1
1.9
0.333195
0.633071
26
0.1
2.6
0.333195
0.866308
26
0.1
2.6
0.333195
0.866308
8
8
0.1
0.8
0.284782
0.227826
18
0.1
1.8
0.284782
0.512608
25
0.1
2.5
0.284782
0.711956
25
0.1
2.5
0.284782
0.711956
9
7
0.1
0.7
0.243404
0.170383
17
0.1
1.7
0.243404
0.413786
24
0.1
2.4
0.243404
0.584169
24
0.1
2.4
0.243404
0.584169
10
6
0.1
0.6
0.208037
0.124822
16
0.1
1.6
0.208037
0.33286
23
0.1
2.3
0.208037
0.478486
23
0.1
2.3
0.208037
0.478486
NPV
5.4713
8.929903
10.07169
10.45691
As the Question requires analysis for only 10 years and hence the same is done
Amounts ( in Million Dollars)
Current
Newest technology panel
Even newer panel in 2 years
New technology panel in year 0 & then Even newer panel in 2 years
Year
Kilowatts produced( In Millions)
Rate per Kilowatt
Cash Flow
PV Factor @ 17%
PV of cash Flow
Kilowatts produced( In Millions)
Rate per Kilowatt
Cash Flow
PV Factor @ 17%
PV of cash Flow
Kilowatts produced( In Millions)
Rate per Kilowatt
Cash Flow
PV Factor @ 17%
PV of cash Flow
Kilowatts produced( In Millions)
Rate per Kilowatt
Cash Flow
PV Factor @ 17%
PV of cash Flow
0
1
0
-1.2
1
-1.2
1
0
-1.2
1
-1.2
1
15
0.1
1.5
0.854701
1.282051
25
0.1
2.5
0.854701
2.136752
15
0.1
1.5
0.854701
1.282051
25
0.1
2.5
0.854701
2.136752
2
14
0.1
1.4
0.730514
1.022719
24
0.1
2.4
0.730514
1.753233
14
0.1
1.4
0.730514
1.022719
24
0.1
2.4
0.730514
1.753233
3
13
0.1
1.3
0.624371
0.811682
23
0.1
2.3
0.624371
1.436052
30
0.1
2
0.624371
1.248741
30
0.1
2
0.624371
1.248741
4
12
0.1
1.2
0.53365
0.64038
22
0.1
2.2
0.53365
1.17403
29
0.1
2.9
0.53365
1.547585
29
0.1
2.9
0.53365
1.547585
5
11
0.1
1.1
0.456111
0.501722
21
0.1
2.1
0.456111
0.957833
28
0.1
2.8
0.456111
1.277111
28
0.1
2.8
0.456111
1.277111
6
10
0.1
1
0.389839
0.389839
20
0.1
2
0.389839
0.779677
27
0.1
2.7
0.389839
1.052564
27
0.1
2.7
0.389839
1.052564
7
9
0.1
0.9
0.333195
0.299876
19
0.1
1.9
0.333195
0.633071
26
0.1
2.6
0.333195
0.866308
26
0.1
2.6
0.333195
0.866308
8
8
0.1
0.8
0.284782
0.227826
18
0.1
1.8
0.284782
0.512608
25
0.1
2.5
0.284782
0.711956
25
0.1
2.5
0.284782
0.711956
9
7
0.1
0.7
0.243404
0.170383
17
0.1
1.7
0.243404
0.413786
24
0.1
2.4
0.243404
0.584169
24
0.1
2.4
0.243404
0.584169
10
6
0.1
0.6
0.208037
0.124822
16
0.1
1.6
0.208037
0.33286
23
0.1
2.3
0.208037
0.478486
23
0.1
2.3
0.208037
0.478486
NPV
5.4713
8.929903
10.07169
10.45691
Hence it is advisable to invest in the New technology panel currently & then shift to ultranew one in 2 years.Related Questions
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