Question

Two types of solar panels are available to use for ASU's College Avenue Commons. Type A costs $80,000 initially and has a life of 30 years, at the end of which it will have a salvage value of about $15,000. The energy produced by Type A is estimated to save $4,500 per year. • Solar panels Type B will have a first investment of $110,000, an energy production worth $6,000 per year, and a salvage value estimated at $18,000 after its 34-year life. At an interest rate of 4% per year, use present worth to determine the better option for ASU to invest, if a) We have to choose one of the above two options

Answer 1

The better solar panel option for ASU will be determined by calculating the present worth of the costs, savings, and salvage values of Type A and Type B panels. The calculations use a 4% annual interest rate over the lifespan of each panel type. The option with the higher net present worth is the better investment.

Step-by-step explanation:

To determine which solar panel option is better for ASU's College Avenue Commons, we must calculate the present worth of each choice based on their initial cost, annual savings, salvage value, and lifespan, using a 4% annual interest rate.

Calculating for Type A:

• Initial cost: $80,000
• Annual savings: $4,500 per year for 30 years
• Salvage value: $15,000 after 30 years
• Present Worth (PW) of savings and salvage value using a 4% discount rate (calculated as a uniform series and future amount)

Calculating for Type B:

• Initial cost: $110,000
• Annual savings: $6,000 per year for 34 years
• Salvage value: $18,000 after 34 years
• Present Worth (PW) of savings and salvage value using a 4% discount rate (calculated as a uniform series and future amount)

After calculating the PW for both options considering their entire economic lifespan, the option with the higher present worth of the savings plus salvage value, minus the initial cost, will be the better investment for ASU.