You have an opportunity to install solar panels on your home. The upfront cost of installing the system is $30,000 and the system is expected to save you $140 per month in electricity costs. The expected lifetime of the system is 25 years. a) Write down the formula for the internal rate of return on this project. b) Use Excel to graph the internal rate of return at different discount rates, ranging from 0% to 10%. Attach your graph. c) Over the last 20 years the rate of return on the U.S. stock market has been an average of 7% (using the annual rate of growth in the Wilshire 5000 index). Given that you could invest your $30,000 in the stock market, does the investment in solar panels make sense from an economic perspective? Why or why not? d) How high would the monthly electricity savings need to be to justify this investment if the internal rate of return needed to be at least 7%.
You have an opportunity to install solar panels on your home. The upfront cost of installing the system is $30,000 and the system is expected to save you $140 per month in electricity costs. The expected lifetime of the system is 25 years. a) Write down the formula for the internal rate of return on this project. b) Use Excel to graph the internal rate of return at different discount rates, ranging from 0% to 10%. Attach your graph. c) Over the last 20 years the rate of return on the U.S. stock market has been an average of 7% (using the annual rate of growth in the Wilshire 5000 index). Given that you could invest your $30,000 in the stock market, does the investment in solar panels make sense from an economic perspective? Why or why not? d) How high would the monthly electricity savings need to be to justify this investment if the internal rate of return needed to be at least 7%.
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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Q. 3.
You have an opportunity to install solar panels on your home. The upfront cost of installing the system is $30,000 and the system is expected to save you $140 per month in electricity costs. The expected lifetime of the system is 25 years.
a) Write down the formula for the internal rate of return on this project.
b) Use Excel to graph the internal rate of return at different discount rates, ranging from 0% to 10%. Attach your graph.
c) Over the last 20 years the rate of return on the U.S. stock market has been an average of 7% (using the annual rate of growth in the Wilshire 5000 index). Given that you could invest your $30,000 in the stock market, does the investment in solar panels make sense from an economic perspective? Why or why not?
d) How high would the monthly electricity savings need to be to justify this investment if the internal rate of return needed to be at least 7%.
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