You are keen on the use of solar power and have decided to evaluate investing in a solar system for your home. After consulting with several solar​ contractors, you have learned that the installed cost of solar systems is about ​$2.55 per kilowatt hour​ (kWh) of rated production and best practice is to install a solar system equal in capacity to

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
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You are keen on the use of solar power and have decided to evaluate investing in a solar system for your home. After consulting with several solar​ contractors, you have learned that the installed cost of solar systems is about ​$2.55 per kilowatt hour​ (kWh) of rated production and best practice is to install a solar system equal in capacity to your annual electric consumption. You consume 11,000 kWh a year at a current cost of ​$0.11 per kWh and future costs per kWh are expected to increase 1.51​% per year. For the first year of​ operation, you will receive a tax rebate equal to 22​%
of the installed cost of the solar system and your marginal tax rate is 22%.
​Finally, because solar systems have an indefinite life​ expectancy, you expect to save the cost of electricity for perpetuity. Use the information you have gathered to determine the​ following:
 
a. The initial cash flow.
b. The periodic cash flow for the first ten years.
c. Terminal cash flow for year ten using a discount rate of 7​%.
d. The net present value​ (NPV) of the project cash flows using a discount rate of 7​%.
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