Question
Could you go over the discounting costs and benefits question step by step please? Exercise: Discounting Costs and Benefits The Arizona Cardinals (a football team)
Could you go over the discounting costs and benefits question step by step please?
Exercise: Discounting Costs and Benefits
The Arizona Cardinals (a football team) are considering a project to implement solar water heaters on their stadium and training facilities. Setting up these water heaters will cost $10 million upfront, but will qualify the firm to receive a \green energy subsidy" of $4 million each year. In addition, it will reduce the Cardinals' reliance on the power grid and reduce operating costs by $1 million each year. In general the lifespan of the water heaters is 5 years, and at the end of which they will have to be dismantled and sold for scrap for 20 percent of their initial cost. The subsidies arrive at the beginning of every year. All estimates of avoided costs are made assuming they occur at the end of each year. The nominal discount rate through the whole period is 9.2 percent and the rate of inflation is 5 percent. Find the net present value of the project.
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