Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The South Shore Solar Solutions (4S) company of Hingham, MA enters into lease agreements with towns south of Boston to erect solar-collection canopies over parking

The South Shore Solar Solutions (4S) company of Hingham, MA enters into lease agreements with towns south of Boston to erect solar-collection canopies over parking lots on town-owned properties (for example, at public school or town office buildings). Depending on the agreement, 4S sells the solar power to the town or National Grid and/or Eversource (the two electric utility companies that serve the South Shore.

The following proposal has been received from the town of Weymouth: 4S will build the canopy and they will pay Weymouth 15% of the revenue each year in lieu of rent. 4S will pay for all the maintenance and repairs. At the end of 10 years, the town of Weymouth can either renew the lease or purchase the solar-collection canopies for $50,000. S4 has a 25% income tax rate and they believe that they need to earn a 15% rate of return to be compensated for the risk associated with this investment.

The cost of the solar-collection canopy will be $500,000. 4S will receive a Federal income tax credit of 20% of the cost of canopy (it will offset taxes due on other earnings by 4S) if the construction is complete before 12/31/22 (otherwise, there is no solar-investment tax credit). The life of the solar panels is 10 years. The expect salvage value of these panels is $50,000. 4S expects that maintenance and repairs will amount to $20,000 per year. 4S will pay $5,000 per year for insurance on the panels and the canopy they will be mounted on. 4S will sell the National Grid at a rate of $0.23KW (the current price). The solar-collection canopy will generate 50,000KW per month (on average).

[1] What would be the amount of the initial investment made by 4S?

[2] What would be the expected after-tax cash-flow from the solar-collection canopy?

[3] What would be the NPV of the project?

[4] Should 4S accept the proposal from the Town of Weymouth and undertake the project?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cases In Financial Reporting

Authors: Ellen Engel, D. Eric Hirst, Mary Lea McAnally

8th Edition

1618531220, 9781618531223

More Books

Students also viewed these Finance questions

Question

How should a consultant be selected?

Answered: 1 week ago

Question

Why is a consulting contract needed?

Answered: 1 week ago