In January $2022,$ Chen recognized the potential opportunity to invest in a solar power system. A contractor submitted two independent proposals for solar systems: one for the $100$kW$,$ the other for the $230$kW$.$ The solar panels for the $100$kW system would require $7,000$ square feet $(650$ square metres$)$ of roof space, while the solar panels for the $230$kW system would require $15,000$ square feet $(1,400$ square metres$).$ The proposals suggested installing the $100$kW system on the main factory roof and the $230$kW system on the main factory roof with its excess panels on the finished goods warehouse built primarily to support storage of finished goods inventory $($see Exhibit $5).$

Both systems consisted of solar panels, mounting equipment, inverters, wiring, and labour required for installation. And once parts were acquired, installation would take six weeks. The contractor would purchase and import the parts and equipment then install in $2022,$ with the system becoming operational around the start of $2023.$

at pre$-$tax cost of debt of percent. The bass realment tens were to be mgual to the sai os we yater The corporate tax rate was $25$ per cent. Tax rules in Jamaica depreciated solar equipment on a straight$-$line basis over eight years with $0$ per cent initial allowances in the year of purchase. Given the highly customized nature of the solar power system installation, neither system was expected to have a salvage value.

$100-$Kilowatt System

The $100$kW system's $220$ solar panels, two inverters, and all necessary mounting equipment would cost US$$134,757$ to purchase and import to Jamaica net of GCT exemptions. The fee to install the roof racking, solar panels, and electrical equipment to carry power from the roof of JMF$\text{'}$s main factory building into the factory's electrical system would be US$$61,216.$ The $100$kW system would be capable of selling electricity back to the grid, which would incur an additional $$400,000$ for licensing and the professional electrical engineering fees required to approve the additional equipment installation required to facilitate net billing.

The usage charge savings for the $100$kW system were projected to be $$563,000$ per month in $2023.$ Due to solar panel degradation, the usage charge savings produced would decrease linearly by $3$ per cent of the original $2023$ savings every year for the project's duration. Demand charge savings would not begin until the following year with $$2,140,000$ of savings per year from decreased peak power usage. Like the usage charge savings, solar panel degradation would also cause the demand charge savings to decrease linearly by $3$ per cent of the original $2024$ value per year. Foreign exchange savings were expected to be $$50,000$ in $2023$ and increase by $2$ per cent each year over the life of the project.

JMF would also generate revenue through selling excess power to the utility provider. Given that the solar power system could generate excess power approximately two days per week, revenue generated through net billing for each year would be two$-$fifths multiplied by the electricity usage savings and multiplied by a factor of one$-$fifth. This total accounted for the difference in the price that JMF initially purchased electricity versus the price that JPS repurchased electricity. System maintenance would be $$400,000$ per year beginning in $2023$ and increase by $1$ per cent per year, and insurance would cost $$380,000$ per year for the project's duration.

The $230$kw system would require $510$ solar panels each capable of producing $0\mathrm{.}445$kW as well as two inverters for a net cost of US$$196,979.$ Installation of the panels and all the necessary electrical equipment would cost US$$75,761.$

Although the $230$kW system was much larger than the $100$kW system, the $230$kW system was strategically oversized relative to JMF$\text{'}$s energy usage to capture sunlight throughout parts of the day when the panels experienced sub optimal sunlight such as early mornings or late evenings $($see Exhibit $6).$ As a result, the $230$kW system would be capable of saving $$726,000$ per month in usage charges in $2023,$ while the demand charge savings would be $$2,420,000$ per year beginning in $2024.$ However, the solar panels in the $230$kW system would degrade at a similar rate to the $100$kW system, and foreign exchange savings were expected to be $$70,000$ in $2023$ and increase at a similar rate as the $100$kW system. The maintenance and insurance costs would be higher on the larger system costing the company $$960,000$ per year in $2023$ and increasing at a rate of $1$ per cent per year and $$728,000$ per year, respectively, for the life of the system. $$ Using NPV analysis, evaluate the financial feasibility of the two investment opportunities.

$$ Perform sensitivity analysis with $7\%$ growth rate for foreign exchange savings.

$$ What would be the qualitative aspects of investment opportunities Nicholas need to consider?