Tropical Soft Drinks is evaluating a proposal to install solar panels on the roo
ID: 2689720 • Letter: T
Question
Tropical Soft Drinks is evaluating a proposal to install solar panels on the roof of it's factory near San Juan. The panels will cost $150,000 per set. Depending on the price of electricity and the efficiency of the panels, the project will increase operating cash flows by either $50,000 per year or $75,000 per year. The useful life of the panels is 5 years. If early results indicate savings of $75,000 per year, four additional sets of panels will be installed immediately at the same cost with the same projected savings. The probability of either outcome is 50%. Use a discount rate of 10%. What is the expected NPV of the project if the option to expand is considered. A) $671,545 B) $355,542 C) $236,924 D) $711,084Explanation / Answer
Tropical Soft Drinks is evaluating a proposal to install solar panels on the roof of it's factory near San Juan. The panels will cost $150,000 per set. Depending on the price of electricity and the efficiency of the panels, the project will increase operating cash flows by either $50,000 per year or $75,000 per year. The useful life of the panels is 5 years. If early results indicate savings of $75,000 per year, four additional sets of panels will be installed immediately at the same cost with the same projected savings. The probability of either outcome is 50%. Use a discount rate of 10%. What is the expected NPV of the project if the option to expand is considered.
A) $671,545
B) $355,542
C) $236,924
d) $711,084
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