Question 1: A biomass plantation operator can invest $1,000 today to plant a new

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Question 1: A biomass plantation operator can invest $1,000 today to plant a new crop of trees, which, it is estimated, can be sold at a net gain (sales - growing and harvesting costs) of $10,000 in 40 years. Determine whether this is a profitable investment if the Minimum Acceptable Rate of Return (MARR) is 12% Question 2 Write a paragraph describing how a company might go about determining the MARR for a renewable energy focused project. Would the MARR generally be higher or lower? Would a renewable energy project have more or less risk that a traditional process? How would uncertainly need to be included. Justify your answer for full credit. Question 3: A farmer is considering installing a photo voltaic system for pumping water at an installed cost of $10,000. The system is expected to save $1,200 worth of diesel fuel annually and has annual maintenance costs of $100. Calculate the net present value (NPV) of this investment if the expected life is 30 years and the interest rate is 8%. Should the farmer make this investment? Question 4: Suppose that university regulations are proposed requiring all new dorm facilities utilize solar energy for water heating. A new dorm facility is being built and two hybrid water heating systems that utilize solar to supplement natural gas heating. Option 1 is based on double glazed flat plate collectors and Option 2 uses evacuated tubular collectors. Both options have a useful life of 20 years. Pertinent data is listed in the table below Option 1 Option 2 Capital Cost Annual Maintenance Cost Anticipated Fuel Savings $3,200,000 $50,000 $600,000 $2,700,000 $80,000 $560,000 Assuming an interest rate of 10%, which option is preferred?

Explanation / Answer

Ans 1

Investment P = $1000

Net gain S = $10000

Time period n = 40 years

Calculate the rate of return on this investment

S = P (1 + i)n

$10000 = $1000 (1 + i)40

$10 = (1 + i)40

Take natural logarithm on both sides

ln 10 = 40 ln (1 + i)

ln (1 + i) = 0.05756

1 + i = 1.0592

i = 0.0592 x 100 = 5.92 %

Which is less than MARR of 12%

Therefore this is not a profitable investment

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