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Determining and evaluating project cash flows for a home solar system You are keen on the use of solar power and have decided to evaluate investing in a solar system for your home. After consulting with several solar contractors, you have learned that the installed cost of solar systems is about $2.45 per kilowatt hour (kWh) of rated production and best practice is to install a solar system equal in capacity to your annual electric consumption. You consume 13,000 kWh a year at a current cost of $0.12 per kWh and future costs per kWh are expected to increase 1.46% per year. For the first year of operation, you will receive a tax rebate equal to 22% of the installed cost of the solar system and your marginal tax rate is 20%. Finally, because solar systems have an indefinite life expectancy, you expect to save the cost of electricity for perpetuity. Use the information you have gathered to determine the following: a. The initial cash flow. b. The periodic cash flow for the first ten years. c. Terminal cash flow for year ten using a discount rate of 4%. d. The net present value (NPV) of the project cash flows using a discount rate of 4%. Determining and evaluating project cash flows for a home solar system You are keen on the use of solar power and have decided to evaluate investing in a solar system for your home. After consulting with several solar contractors, you have learned that the installed cost of solar systems is about $2.45 per kilowatt hour (kWh) of rated production and best practice is to install a solar system equal in capacity to your annual electric consumption. You consume 13,000 kWh a year at a current cost of $0.12 per kWh and future costs per kWh are expected to increase 1.46% per year. For the first year of operation, you will receive a tax rebate equal to 22% of the installed cost of the solar system and your marginal tax rate is 20%. Finally, because solar systems have an indefinite life expectancy, you expect to save the cost of electricity for perpetuity. Use the information you have gathered to determine the following: a. The initial cash flow. b. The periodic cash flow for the first ten years. c. Terminal cash flow for year ten using a discount rate of 4%. d. The net present value (NPV) of the project cash flows using a discount rate of 4%

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