A university spent $1.8 million to install solar panels atop a parking garage. These

panels will have a capacity of 500 kw, have a life expectancy of 20 years and

suppose the discount rate is 10%.

Answer:

a. If electricity can be purchased for costs of $0.10 per kwh, how many hours per

year will the solar panels have to operate to make this project break even?

Making the present value (PV) of the electricity generated by the solar panels equal to

the cost. The PV is the 20 year discounted value.

Now making an assumption that it

operates for one hour each of 20 years and generates 500kwh for each year.

Looking

at one hour of operation each year, it would generates (500kwh*$0.10/kwh) =$50 value

of electricity per year.

Now present value would be as follows:

PV = $50/(1+10%) + $50/(1+10%)

2

+ $50/(1+10%)

3

+...+ $50/(1+10%)

20

PV = $50/(1.1) + $50/(1.1

2

+ $50/(1.1)

3

+...+ $50/(1.1)

20

PV = $425.68