Question
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
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 rm to receive a \green energy subsidy" of $1.5
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 they can either be dismantled and sold for scrap for 20 percent of their initial cost or replaced with a new iteration of the solar water heaters. If the team decides to go with a second iteration, they must remove the previous water heaters, a cost of $1 million dollars, and then set up the new water heaters with the same upfront cost of $10 million. If the team decides to go ahead with the second iteration, the \green energy subsidy" and the reduction in operating costs remain the same as in the reiteration. At the end of this second iteration, the dismantled scrap is worthless and the rm won't be able to sell it. The water heaters can't be consider for a third iteration. 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 ination is 5 percent.
Find the net present value of the project.
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