Home Wind Turbines Inc. Project Evaluation

You are considering a small wind turbine investment to supply electricity to your home. The salesperson for Home Wind Turbines Inc. has given you the following data about the proposed 2.5 kWh wind turbine:

Installed cost $12,000 up front

Rebates/incentives $4,000 up front (cash flow benefit)

Expected annual energy output 5,280 kWh/year

Annual operation and maintenance $120/yr

Useful life 20 years

Retail electricity price $0.11/kWh (the price you are currently paying for electricity before the wind

turbine)

Discount rate 2%

You should calculate the net annual energy savings for the wind turbine by multiplying the expected annual energy output by the Retail electricity price then subtracting Annual operation and maintenance.

Calculate the following Decision Rules:

Net Present Value (in $s)

Payback (in years)

Discounted payback at 1% (not at the 2% discount provided) (in $s)

Internal Rate of Return (as a %)

The Profitability Index at 1% ( as a unit ratio)

Also answer the following:

Is the 2% Discount rate reasonable? Why? What should it be?

What decision rule should be the primary decision method?

Would you buy and install this wind turbine in your own home?