Required: 1. What is the net present value of the investment of each house? 2.What is the
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Question:
Required:
1. What is the net present value of the investment of each house?
2.What is the payback period of each house?
3. What is the discount payback period of eachhouse?
4. Should the project(s) be undertaken? Advise
5. If NPV < 0, what rebates (R/KWh) in electricity price do the company needs?
Transcribed Image Text:
Guest Houses Corporation is considering buying a solar panel(s) for electricity saving in two of their house's blocks, one based in Johannesburg and the other in Cape Town. They contracted you to advise them whether to buy it or not. With fluctuating weather pattens, it is estimated that the power output can range from 25 kWh to 46 kWh per day. They estimated that they can save up to 9 600 kWh per year using solar system per house blocks. The solar panel company have assured them a guarantee of 10 years in continuous running. They also claim that their footprint is nationally, and they sell their products at similar prices. You collected the following data for your assessment: • Project life = 10 years • Cost of capital = 10% • Estimated electricity output = 38 kWh per day • Electricity output efficiency = 56 % • Electricity costs in Cape Town at year 0 is R2.84 per kWh and expected to grow at 10 % for the project life. • • • Routine maintenance expenses = R7 400 per year. Assume constant amount for the first 5 years and then 3 % for the remainder of the remaining year. • Ignore taxes and depreciations. Electricity costs in Johannesburg at year 0 is R2.76 per kWh and expected to grow at 10% for the project life. Number of days per year = 365 days Cost of solar system = R245 000 Guest Houses Corporation is considering buying a solar panel(s) for electricity saving in two of their house's blocks, one based in Johannesburg and the other in Cape Town. They contracted you to advise them whether to buy it or not. With fluctuating weather pattens, it is estimated that the power output can range from 25 kWh to 46 kWh per day. They estimated that they can save up to 9 600 kWh per year using solar system per house blocks. The solar panel company have assured them a guarantee of 10 years in continuous running. They also claim that their footprint is nationally, and they sell their products at similar prices. You collected the following data for your assessment: • Project life = 10 years • Cost of capital = 10% • Estimated electricity output = 38 kWh per day • Electricity output efficiency = 56 % • Electricity costs in Cape Town at year 0 is R2.84 per kWh and expected to grow at 10 % for the project life. • • • Routine maintenance expenses = R7 400 per year. Assume constant amount for the first 5 years and then 3 % for the remainder of the remaining year. • Ignore taxes and depreciations. Electricity costs in Johannesburg at year 0 is R2.76 per kWh and expected to grow at 10% for the project life. Number of days per year = 365 days Cost of solar system = R245 000
Expert Answer:
Answer rating: 100% (QA)
To solve this problem we can use the net present value NPV payback period and discounted payback period methods 1Net Present Value NPV of the investment To calculate NPV we need to find the present va... View the full answer
Related Book For
Managerial Accounting for Managers
ISBN: 978-1259578540
4th edition
Authors: Eric Noreen, Peter Brewer, Ray Garrison
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