Josh Rudin has been investigating the costs and benefits of rooftop solar. Currently, Josh pays 200 per month to his local electric utility company for his households nonsolar electricity.

A rooftop solar installation would cost 28,000 in Year 0 and it would last for 10 years. At the end of Year 10 a tear-down fee of 1,000 would be required to have the solar panels removed, thus making way for whatever new technology is available at that time.

The federal governments Investment Tax Credit (ITC) would pay 35% of the Year-0 investment expense.

The appropriate monthly discount rate for all cash flows is 0.4% (this means a nonpercentage discount rate of 0.004).

Josh would pay any required Year-0 investment costs with cash. Should he go with the solar? Or stick with the utility company? By how much does he benefit by going with the preferred alternative?

If Josh decides to go with rooftop solar, he would still have to pay the electric utility company 20 per month for grid fees. On the other hand, the solar installation is expected to produce more electricity than he needs, and he can sell the excess electricity to the utility company. He expects to earn 40 per month by doing so.