CASHFLOWS

A waste management company is considering powering a temporary waste disposal site in a remotr area by either solar panels or constructing an abovr ground electric line to the fwcility and using conventional power

Solar panels will cost $20,000 to install and will have a useful life of 6yrs with no salvage value. Annual cost for inspection, cleaning, etc. is expected to be $5,000 for first 3 years and $7,000 for last 3 years.

Solar panels are tax free.

A new power line will cost $100,000 to install, with power costs expected to be $1000 per year for the first 2 years, $ 800 for years 3 and 4 and $600 for year 5 and $400 for year 6. Since the site is temporary, it will be abandoned in 6 years. It will cost $ 5000 to dismantle the power lines but the waste can be sold for a salvage value of $6000.

If interest rate is expected to be between 8% per year throughout the project life, which alternative should be selected?