Connelly Industries is evaluating investing in solar panels to provide some of the electrical needs of its

Question:

Connelly Industries is evaluating investing in solar panels to provide some of the electrical needs of its main office building in Orlando, Florida. The solar panel project would cost $ 475,000 and would provide cost savings in its utility bills of $ 35,000 per year. It is anticipated that the solar panels would have a life of 15 years and would have no residual value.

Requirements

1. Calculate the payback period in years for the solar panel project.

2. If the company uses a discount rate of 8%, what is the net present value of this project?

3. If the company has a rule that no projects will be undertaken that have a payback period of more than five years, would this investment be accepted? If not, what arguments could managers make to get approval for the solar panel project?

4. What would you do if you were in charge of approving capital investment proposals?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...