Company XYZ is considering to replace an existing electrical water heater with an array of solar panels. The net installed investment cost of the panels is $1,350. Based on an energy audit, the existing water heater uses 210 kilowatt hours (kWh) of electricity per month at $0.15 per kWh. It has been estimated that starting from the end of year three, expenses will increase by five dollars every coming year for the next five years, after which the costs will continue to increase by six dollars every coming year until the end of the project lifetime.

a. What is the IRR of this investment if the solar panels have a lifetime of 12 years?

b. What is AW of this project at MARR=6%?

c. Explain and justify your answers of a. and b. using your words