A owner of a shopping mall is planning to install solar PV panels on the roof top.

The 100-kw system will cost $225,000 to install on 600 m² of space available on the roof top. It will have a useful life 20 years and a salvage value of $2,000. Annual operations and maintenance cost will be $1,500.

The system is capable of producing 170,000 kwh of electricity in the first year of operation. However, this output will degrade at a rate of 2% per year through its useful life. The electricity produced will be sold to either the shopping malls tenants or to the power grid at 18 cents per kwh.

60% of the initial system cost will be financed via a 5-year bank loan at an interest rate of 5% per year. The loan will be repaid with 5 equal end-of-year payments starting at the end of the first year. The other 40% of the initial project cost will be financed with companys equity capital.

The company computes the WACC and determines that MARR should be10% for the purpose of evaluating the feasibility of this project

1. What is the annual repayment amount for the bank loan?

2. What is the Present Worth of the project? Is the project financially feasible?

3. What is the IRR of the project?

4. The Levelized Cost of Energy (LCOE) is the average equivalent cost of installing and operating an energy generation asset, per unit of total energy generated over the useful life. Equivalently, LCOE is the constant sale price of electricity generated that makes PW = 0. Determine the LCOE of the proposed solar PV project in cents/kwh.