I have a small business that is an arts and crafts manufacturing operation. I have hired artists who make paintings, pottery, jewellers, lawn sculptures, etc. It is a profitable business, but only modestly so. I have conducted a SWOT analysis and I have looked at capitalizing on my strength to expand the operation to make more money, but I dont seem to have a local market that can support the increased sales I would want. Instead, I am now focused on my largest weakness, the cost of electricity to run my operations.

I was recently approached by someone from Elon Musks company, Tesla, about installing a solar power plant on my building. She said that I could lower my costs by getting free electricity from the sun by installing a photovoltaic system. I am smart enough to know that there is no such thing as free, but I am wondering if it makes strategic sense for me to generate my own power. I wonder how long it will take to recoup my investment in the solar power plant. I wonder if the internal rate of return on the project would make this attractive. I have some extra cash on hand but wonder if it would be good to invest in this idea, or better to put the money into a mutual fund. I dont have enough cash to fund the construction of the whole solar power plant. I will have to borrow some funds to complete the project.

In addition to generating my own power, I can also sell Solar Renewable Energy Credits (SREC). The state of Maryland recently passed a law that calls for 12% of the energy generated in the state of Maryland to be produced via solar photovoltaics. If power companies dont generate this themselves, they can purchase the solar credit rights that my business produces. As an additional incentive, the federal government will give me a tax credit equal to 24% of my investment in the year following the installation of my solar power plant.

Please help me with my strategic business decision creating some financial projections. These can be generated by answering the following questions:

What would the payback period be for this business idea?

What would the internal rate of return be (IRR)?

What is the net present value (NPV) of the business idea?

Here are some numbers that it would be good for you to know in answering the three financial projection questions above:

I am currently paying my local utility, BG&E $0.14 per kWh of power that I consume.

BG&E will pay me $0.07 per kWh for the energy I produce each year.

The solar power plant is guaranteed to produce 20,000 kWh per year for the next 20 years.

The Tesla salesperson gave me a quote of $50,000 for the solar power plant.

Tesla says that I should plan on maintenance for the installation to be 1% per year of the installation cost.

I have $20,000 cash I can invest.

I will need to borrow $30,000 and my bank will charge me 5% interest (cost of capital)

I have confirmed that I will receive $12,000 back on my taxes next year if I make this investment.

When I get the tax money, I will immediately use it to pay down part of the $30,000 that I borrowed.

To complete this assignment, you will need to prepare a cash flow analysis that takes your revenue (money saved by not purchasing electricity plus money made by selling your SREC each year) and deducts your expenses (maintenance cost, plus the cost of borrowing $30,000) to come up with how much more profitable this makes your business each year. I suggest you run this cash flow analysis out for at least 20 years, the life of the solar power plant. Once you have the cash flow analysis you will be able to use that information to calculate the payback period, IRR and NPV for the solar power plant investment idea.

With the information provided by this financial analysis, please make a recommendation on whether I should proceed with this project.