Your group of rural cabin owners is considering a small renewable energy project
ID: 1168342 • Letter: Y
Question
Your group of rural cabin owners is considering a small renewable energy project that would average 100 kW of output year-round, with an expected lifetime of 20 years. The project has a capital cost of $280,000, and a salvage value of $30,000. The community currently pays $0.05/kWh for electricity. It uses a discount rate of 7% to assess these types of investments. What is the NPV for the project? Is it viable? (Note: assume no escalation of electricity prices.)
I want to know the steps to determine the annual savings of the renweable energy option.
Explanation / Answer
Cash flow per year 100 0.05 5 Year Cash flow Discount factor 7% Present value 1 5 0.935 4.672897196 2 5 0.873 4.367193641 3 5 0.816 4.081489384 4 5 0.763 3.81447606 5 5 0.713 3.564930897 6 5 0.666 3.331711119 7 5 0.623 3.113748709 8 5 0.582 2.910045523 9 5 0.544 2.719668713 10 5 0.508 2.541746461 11 5 0.475 2.375463982 12 5 0.444 2.220059796 13 5 0.415 2.074822239 14 5 0.388 1.939086205 15 5 0.362 1.812230098 16 5 0.339 1.693672989 17 5 0.317 1.582871952 18 5 0.296 1.479319582 19 5 0.277 1.382541665 20 5 0.258 1.292095014 20 30000 0.258 7752.570084 7805.540156 Less: Investment 280000 -272194.46
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