Happy Trails Senior Living Community is considering investing in solar panels to save on utility costs. The initial cost of the panels, including installation, is $250,000. The expected reduction in utility costs are noted below. Utility costs savings for the next five years are: Year 1: $65,000 Year 2: $68,250 Year 3: $71,663 Year 4: $75,246 Year 5: $79,008 The current interest rate used to evaluate investment decisions is 6%. The inflation rate is expected to remain constant at 3% for the entire period. Instructions (a) Compute the present value of the expected cash flows (savings). (b) Should Happy Trails move forward with the investment?
Happy Trails Senior Living Community is considering investing in solar panels to save on utility costs. The initial cost of the panels, including installation, is $250,000. The expected reduction in utility costs are noted below. Utility costs savings for the next five years are: Year 1: $65,000 Year 2: $68,250 Year 3: $71,663 Year 4: $75,246 Year 5: $79,008 The current interest rate used to evaluate investment decisions is 6%. The inflation rate is expected to remain constant at 3% for the entire period. Instructions (a) Compute the present value of the expected cash flows (savings). (b) Should Happy Trails move forward with the investment?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Happy Trails Senior Living Community is considering investing in solar panels to save on utility costs. The initial cost of the panels, including installation, is $250,000. The expected reduction in utility costs are noted below. Utility costs savings for the next five years are:
Year 1: $65,000
Year 2: $68,250
Year 3: $71,663
Year 4: $75,246
Year 5: $79,008
The current interest rate used to evaluate investment decisions is 6%. The inflation rate is expected to remain constant at 3% for the entire period.
Instructions
(a) Compute the present value of the expected cash flows (savings).
(b) Should Happy Trails move forward with the investment?
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