Question

Flat Solar Panels: A field of flat solar panels angled to best catch the incident solar radiation is expected to yield a power of 2.6 MW and will cost $87 million initially with first-year operating costs of $2 million, growing 250,000 annually. It will produce electricity worth $6.9 million the first year; this revenue stream is expected to increase at a simple interest rate of 12%, every year from there on (that is, 112% of 6.9 Mil in year 2, 124% of 6.9 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

Solution:

	in Million $
	year 0	year 1	year 2	year 3	year 4	year 5	year 6	year 7	year 8	year 9	year 10	year 11	year 12	year 13	year 14	year 15	year 16	year 17	year 18	year 19	year 20
cost of the solar panel	87
annual operating costs(A)		2	2.25	2.50	2.75	3.00	3.25	3.50	3.75	4.00	4.25	4.50	4.75	5.00	5.25	5.50	5.75	6.00	6.25	6.50	6.75
Revenue earned from the solar panel(B)		6.9	7.728	8.556	9.384	10.212	11.04	11.868	12.696	13.524	14.352	15.18	16.008	16.836	17.664	18.492	19.32	20.148	20.976	21.804	22.632
cash flow(B-A)		4.9	5.478	6.056	6.634	7.212	7.79	8.368	8.946	9.524	10.102	10.68	11.258	11.836	12.414	12.992	13.57	14.148	14.726	15.304	15.882
Discounting factor @10%		0.909091	0.826446	0.751315	0.683013	0.620921	0.564474	0.513158	0.466507	0.424098	0.385543	0.350494	0.318631	0.289664	0.263331	0.239392	0.217629	0.197845	0.179859	0.163508	0.148644
Present value of cashflows		4.454545	4.527273	4.549962	4.531111	4.478085	4.397252	4.294107	4.173375	4.039106	3.894758	3.743275	3.587146	3.428468	3.268994	3.110182	2.953227	2.799106	2.648601	2.502326	2.360758
Total present value of cashflows	73.74166
Present value of cash outflow	87
Net present value	-13.2583

As the net present value is negative, the project is not viable