Do It! Review 24-3 Ranger Corporation has decided to invest in renewable energy
ID: 2520216 • Letter: D
Question
Do It! Review 24-3 Ranger Corporation has decided to invest in renewable energy sources to meet part of its energy needs for production. It is considering solar power versus wind power. After considering cost savings as well as incremental revenues from selling excess electricity into the power grid, it has determined the following. Click here to view PV table Solar Wind Present value of annual cash flows $53,280 $38,900 $105,200 $136,100 Initial investment Determine the net present value and profitability index of each project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to 0 decimal places, e.g 125 and profitablity index answers to 2 decimal places, e-9-15.25 For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Solar Wind Net present value Profitability index Which energy source should it choose? The company should chooeenergy source. sExplanation / Answer
Answer a.
Solar Project:
Net Present Value = Present Value of Annual Cash Flows - Initial Investment
Net Present Value = $53,280 - $38,900
Net Present Value = $14,380
Profitability Index = Present Value of Annual Cash Flows / Initial Investment
Profitability Index = $53,280 / $38,900
Profitability Index = 1.37
Wind Project:
Net Present Value = Present Value of Annual Cash Flows - Initial Investment
Net Present Value = $136,100 - $105,200
Net Present Value = $30,900
Profitability Index = Present Value of Annual Cash Flows / Initial Investment
Profitability Index = $136,100 / $105,200
Profitability Index = 1.29
Answer b.
Net Present Value of Wind Project is higher than Net Present Value of Solar Project. So, Company should choose Wind energy source.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.