The Solar Energy Company is producing electricity directly from a solar source b

Question

The Solar Energy Company is producing electricity directly from a solar source by using a large array of solar cells and selling the power to the local utility company. Because these cells degrade over time, thereby resulting in lower conversion efficiency and power output, the cells must be replaced every four years, which results in a particular cash flow pattern that repeats itself as follows n = 0, -$600,000; n = 1, $400,000; n = 2, $300,000; n = 3, $200,000; and n = 4, $100,000. Determine the annual equivalent cash flows at i = 10%.

Explanation / Answer

Annual Equivalent Cash flow = The sum of the annual worth of all the cashflows of the project.

Year Cashflow Interest PV AECF 0 -600000 10% -600000.00 1098654 1 400000 10% 363636.3636 2 300000 10% 520661.157 3 200000 10% 497370.3982 4 100000 10% 316986.5446

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