3) You have an opportunity to install solar panels on your home. The upfront cost ofinstalling the system is $30,000 and the system is expected to save you $140 permonth in electricity costs. The expected lifetime of the system is 25 years.a) Write down the formula for the internal rate of return on this project.b) Use Excel to graph the internal rate of return at different discount rates, rangingfrom 0% to 10%. Attach your graph.c) Over the last 20 years the rate of return on the U.S. stock market has been anaverage of 7% (using the annual rate of growth in the Wilshire 5000 index).Given that you could invest your $30,000 in the stock market, does theinvestment in solar panels make sense from an economic perspective? Why orwhy not?d) How high would the monthly electricity savings need to be to justify thisinvestment if the internal rate of return needed to be at least 7%.

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Answered: formula for the internal rate of return…

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formula for the internal rate of return on this project.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter14: Real Options

Section: Chapter Questions

Problem 3MC: Tropical Sweets is considering a project that will cost $70 million and will generate expected cash...

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

3) You have an opportunity to install solar panels on your home. The upfront cost of
installing the system is $30,000 and the system is expected to save you $140 per
month in electricity costs. The expected lifetime of the system is 25 years.
a) Write down the formula for the internal rate of return on this project.
b) Use Excel to graph the internal rate of return at different discount rates, ranging
from 0% to 10%. Attach your graph.
c) Over the last 20 years the rate of return on the U.S. stock market has been an
average of 7% (using the annual rate of growth in the Wilshire 5000 index).
Given that you could invest your $30,000 in the stock market, does the
investment in solar panels make sense from an economic perspective? Why or
why not?
d) How high would the monthly electricity savings need to be to justify this
investment if the internal rate of return needed to be at least 7%.

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