Question

A company is investing in a solar panel system to reduce its electricity costs. The system requires a cash payment of $118,982.50 today. The system is expected to generate net cash flows of $10,209 per year for the next 35 years. The investment has zero salvage value. The company requires an 7% return on its investments. 1-a. Compute the net present value of this investment. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your present value factor to 4 decimals.) 1-b. Should the project be accepted

Answer 1

Answer and Explanation:

The computation of the net present value is given below:

a.

As we know that

Net present value

= Annual cash inflows × PVIFA factor at 7% for 35 years - initial investment

= $10,209 × 12.9477 - $118,982.50

= $132,183.0693 - $118,982.50

= $13,200.57

Hence, the net present value is $13,200.57

b. Yes the project should be accepted as it net present value comes in positive amount