Question

Question 8

You are considering installing solar panels on your roof, which you expect will reduce your utility bill by $1300 in the first year (assume end of year), with the savings growing at a 3.4% annual rate thereafter for the foreseeable future (assume perpetual). If the installation costs $13,000 after all federal and state tax credits and the appropriate discount rate is 13%, what is the NPV of this investment? Round to the nearest cent.

Question 9

What is the NPV of a project that costs $33,000 today and is expected to generate annual cash inflows of $11,000 for the next 7 years, followed by a final inflow of $14,000 in year 8. Cost of capital is 8.4%. Round to the nearest cent.

Answer 1

8.

Net present value (NPV) = Present value of cash inflows-Present value of cash outflows.

= $1300/(13%-3.4%) - $13,000

= $13541.67 - 13000

= $541.67

Hence, NPV is $541.67

9.  

Year	Annual cash flows ($)	Present Value Factor (PVF) at 7.60%	Present Value of annual cash flows ($)
			[Annual cash flow x PVF]
		1.084
1	11,000	0.92251	$     10,147.60
2	11,000	0.85102	$       9,361.26
3	11,000	0.78508	$       8,635.84
4	11,000	0.72424	$       7,966.65
5	11,000	0.66812	$       7,349.31
6	11,000	0.61635	$       6,779.80
7	11,000	0.56858	$       6,254.43
8	14,000	0.52452	$       7,343.34
Present Value of Cash inflows			$     63,838.23
Less: Initial Investment			$     33,000.00
Net Present Value (NPV) =			$     30,838.23