Question

Mechanized solar panels: A field of mechanized solar panels with motors that allow panel frame motion so that the panel themselves will be normal to incident radiation any time of the day. This design is expected to yield a power of 3.1 MW and will cost $101 million initially with first-year operating costs of $2.3 million, growing 300,000 annually. It will produce electricity worth $8.8 million the first year; this revenue stream is expected to increase at a simple interest rate of 8%, every year from there on (that is, 112% of 8.8 Mil in year 2, 124% of 8.8 Mil in Year 3, etc.).

Use an interest rate of 10% and a 20-year planning horizon to find the net present value of this project using economic logic equations.

Answer 1

Time period = 20 years

R = 10%

Value of initial investment = $101 Million

Operating cost in year 1 = $2.3 Million

Arithmetic gradient for the cost = $.3 Million

Revenue from electricity in year 1 = $8.8 Million

Arithmetic gradient for revenue = 8.8*8% = .704 Million

Net present value of the project = - initial investment - PV of operating cost + PV of revenues

Net present value of the project = - 101 - 2.3*(P/A, 10%, 20) - .3*(P/G, 10%, 20) + 8.8*(P/A, 10%, 20) + .704*(P/G, 10%, 20)

Net present value of the project = - 101 - 2.3*8.5136 - .3*55.407   + 8.8*8.5136 + .704*55.407  

Net present value of the project = - $23.28 M

So, Net present value of the project is  - $23.28 M