Imperial is considering investing in solar paneling for the roof of its large distribution facility. The investment will cost $9 million and have a six-year useful life and no residual value. Because of rising utility costs, the company expects the yearly utility savings to increase over time, as follows:

Year 1 ..... $1,000,000

Year 2 ..... $1,800,000

Year 3 ..... $2,000,000

Year 4 ..... $3,000,000

Year 5 ..... $4,400,000

Year 6 ..... $4,900,000

Company policy requires a payback period of less than five years and an ARR of at least
10%. Any potential investments that do not meet these criteria will be removed from further consideration. The solar panels have already passed the payback period and ARR screening.

1. Compute the NPV of the solar panels, given the company's 10% hurdle rate.

2. Estimate the IRR of the solar panels. Use Excel to find the exact IRR. (Round your answer to two decimal places.)

The IRR is somewhere between

The exact IRR using Excel is

%.

Should Imperial invest in the solar paneling? Why or why not?

The solar panel proposal meets (all or none or some) of the company's capital investment decisions. It has a payback of (less than or more than) five years and an ARR of (greater than or less than) 10%.
It has a (negative or positive) NPV which indicates that the IRR is (above or below) the company's 10% hurdle rate. Therefore, the solar panels appear to be a (good or poor) investment from a financial standpoint.

Transcribed Image Text:Present Value of Annuity of $1 Future Value of Annuity of $1 Periods 1% 2% 3% 4% 5% 6% 8% 10% 12% 14% 16% 18% 5% Periods Period 1 Period 2 Period 3 Period 4 Period 5 20% 1% 2% 3% 4% 6% 8% 10% 12% 14% 16% 18% 20% Period 1 Period 2 Period 3 Period 4 Period 5 0.980 0.971 0.962 1.942 1.913 1.886 2.884 2.829 2.775 3.808 3.717 3.630 3.546 3.465 3.312 3.170 3.037 4.713 4.580 4.452 4.329 4.212 3.993 3.791 3.605 5.601 5.417 5.242 3.889 3.685 6.472 6.230 6.002 5.786 5.582 5.206 4.868 4.564 7.325 7.020 6.733 6.463 6.210 5.747 5.335 4.968 8.162 7.786 7.435 7.108 6.802 6.247 5.759 5.328 8.983 8.530 8.111 0.952 0.943 0.926 0.909 0.893 1.859 1.833 1.783 1.736 1.690 2.723 2.673 2,577 2.487 | 2.402 0.990 0.877 0.862 0.847 0.833 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.970 2.941 3.902 4.853 2.060 3.184 4.375 1.647 2.020 2.080 3.246 4.506 5.867 1.605 1.566 2.120 2.140 2.160 2.180 2.200 1.528 2.106 2.010 2.030 3.091 2.040 2.050 2.100 2.322 2.246 3.060 3.310 3.374 3.440 4.921 2.174 3.030 3.122 3.153 3.640 3.506 5.066 3.572 2.914 2.798 2.690 2.589 4.060 4.122 4.184 4.246 4.310 4.641 4.779 5.215 5.368 3.433 3.274 3.127 2.991 5.101 5.204 5.309 5.416 5.526 5.637 6.105 6.353 6.610 6.877 7.154 7.442 Period 6 Period 7 Period 8 Period 9 Period 10 9.471 Period 6 Period 7 Period 8 Period 9 Period 10 5.795 5.076 4.917 4.623 4.355 4.111 3.498 3.326 6.152 6.308 6.468 6.633 6.802 6.975 7.336 7.716 8.115 8.536 8.977 9.442 9.930 4.288 4.039 4.639 4.344 7.662 7.898 3.812 4.078 9.487 10.637 11.436 12.300 10.730 13.233 9.369 9.755| 10.159 10.583 11.027 11.491 12.488 13.579 14.776 16.085 19.337 8.142 9.549 10.089 12.916 16.499 6.728 3.605 3.837 7.214 7.434 8.394 8.923 11.414 12.142 8.892 9.214 9.897 14.240 17.519 21.321 7.652 8.286 8.583 15.327 8.566 4.946 7.722 7.360 6.710 6.145 5.650 5.216 4.607 4.303 4.494 4.031 4.192 19.086 20.799 25.959 4.833 10.462 10.950 11.464 12.006 12.578 13.181 14.487 15.937 | 17.549 23.521 8.306 7.887 | 5.453 8.863 8.384 7.536 6.814 6.194 5.660 9.394 8.853 7.904 7.103 6.424 Period 11 Period 12 Period 13 Period 14 Period 15 14.207 14.972 16.645 18.531 20.655 Period 11 10.368 9.787 9.253 8.760 Period 12 11.255 10.575 9.954 9.385 Period 13 12.134 11.348 10.635 9.986 Period 14 13.004 12.106 11.296 10.563 9.899 9.295 8.244 7.367 6.628 Period 15 13.865 12.849 11.938 11.118 10.380 9.712 8.5597.606 6.811 6.142 7.139 6.495 5.938 11.567 12.169 12.808 13.486 12.683 13.412 14.192 15.026 15.917 16.870 18.977 21.384 24.133 13.809 14.680 15.618 16.627 17.713 18.882 21.495 24.523 28.029 14.947 15.974 17.086 18.292 19.599 21.015 24.215 27.975 32.393 16.097 17.293 18.599 20.024 21.579 23.276 27.152 31.772 37.280 4.327 28.755 32.150 39.581 5.029 4.656 23.045 25.733 5.197 4.793 4.439 27.271 30.850 34.931 5.842 5.342 4.910 4.533 32.089 36.786 42.219 48.497 6.002 4.611 37.581 43.842 50.818 60.965 5.468 5.008 59.196 43.672 51.660 5.575 5.092 4.675 72.035 Period 20 18.046 16.351 14.877 13.590 12.462 11.470 9.818 8.514 7.469 6.623 Period 25 22.023 19.523 17.413 15.622 14.094 12.783 10.675 9.077 7.843 6.873 6.097 Period 30 25.808 22.396 19.600 17.292 15.372 13.765 11.258 9.427 8.055 7.003 Period 40 32.835 27.355 23.115 19.793 17.159 15.046 11.925 9.779 8.244 7.105 Period 20 22.019 24.297 26.870 29.778 33.066 36.786 45.762 57.275 72.052 Period 25 28.243 32.030 36.459 41.646 47.727 54.865 73.106 98.347 133.334 181.871 Period 30 34.785 40.568 47.575 56.085 66.439 79.058 113.283 164.494 241.333 356.787 Period 40 5.929 5.353 4.870 91.025 115.380 146.628 186.688 342.603 471.981 530.312| 1,181,882 | 48.886 60.402 75.401 95.026 120.800 154.762 259.057 442.593 767.091 1,342.025 2,360.7574,163.213 7,343.858 5.467 4.948 249.214 6.177 6.233 5.517 790.948 4.979 4.997 5.548
Transcribed Image Text:Present Value of $1 Future Value of $1 Periods Period 1 Period 2 Period 3 Period 4 Period 5 1% 2% 3% 4% 5% 6% 8% 10% 12% 14% 16% 18% Periods 2% 3% 4% 5% 6% 8% 10% 12% 14% 16% 18% 20% 20% 0.847 0.833 0.718 0.694 0.609 0.579 0.516 0.482 0.437 0.402 1% 0.990 0.980 0.971 0.962 0.980 0.961 0.952 | 0.943 0.926 0.890 0.857 0.915 0.889 0.864 0.840 0.794 0.823 0.792 0.735 0.747 0.681 0.909 0.893 0.877 0.826 | 0.797 0.769 0.712 0.675 0.636 0.592 0.567 Period 1 Period 2 Period 3 Period 4 Period 5 0.862 1.010 1.020 1.030 1.040 1.050 1.060 1.080 1.100 1.120 1.140 1.160 1.180 1.200 0.943 0.925 0.907 0.743 1.020 1.030 1.040 1.061 1.093 1.126 1.159 1.082 1.103 1.124 1.158 1.191 1.166 1.210 1.300 1.346 1.561 1.254 1.392 1.440 0.971 0.942 0.751 0.641 1.061 1.260 1.331 1.482 1.125 1.170 1.405 1.574 1.762 1.643 1.939 2.288 1.728 2.074 2.488 0.961 0.924 0.888 0.855 1.360 1.464 1.216 1.276 0.683 0.552 1.082 1.104 1.041 1.262 1.689 1.811 0.951 0.906 0.863 0.822 0.784 0.621 0.519 0.476 1.051 1.217 1.338 1.469 1.611 1.925 2.100 Period 6 Period 7 Period 8 Period 9 0.914 Period 10 0.905 0.820 0.837 0.790 0.746 0.813 0.760 0.705 0.630 0.665 | 0.942 | 0.888 0.933 0.923 0.853 0.789 0.370 0.335 0.354 0.314| 0.279 0.305 0.266 0.233 0.263 0.225 0.227| 0.191 Period 6 Period 7 Period 8 Period 9 Period 10 0.564 0.507 0.456 0.410 1.062 1.126 1.194 1.265 1.340 1.419 1.587 1.772 1.974 2.195 2.436 2.700 2.986 0.711 1.504 0.583 0.677 0.627 0.540 | 0.467 0.645 0.592 0.500 0.614 0.558 0.463 0.513 0.452 0.400 1.072 1.083 1.149 1.230 1.407 1.949 2.211 2.502 2.853 1.316 1.714 2.826 3.185 3.583 0.731 0.404 0.351 1.172 1.267 1.369 1.477 1.594 2.476 3.278 3.803 1.851 2.144 3.759 4.300 0.766 0.703 1.999 2.159 0.837 0.424 0.361 0.308 0.322 | 0.270 0.194 1.195 1.219 1.094 1.305 1.423 1.551 1.689 2.358 2.773 3.252 4.435 5.160 0.744 0.676 0.386 0.162 1.105 1.344 1.480 1.629 1.791 2.594 3.106 3.707 4.411 5.234 6.192 0.195 0.162| 0.135 0.137 Period 11 0.896 Period 12 0.887 0.788 Period 13 0.879 Period 14 0.870 0.758 Period 15 0.861 0.743 0.642 Period 11 Period 12 Period 13 Period 14 Period 15 0.804 0.722 0.650 0.527 0.429 2.332 2.853 0.585 0.557 0.530 0.505 0.350 0.287 0.237 0.208 0.168 0.229 0.182 0.145 0.116 0.093 0.205 0.160 0.125 0.099 0.078 | 0.108 1.116 1.243 1.384 1.898 4.226 6.176 7.430 8.916 1.539 1.710 3.479 5.117 5.936 0.701 0.497 0.397 0.368 0.290 0.340 0.263 0.625 0.319 0.112 1.127 1.268 1.426 1.601 1.796 2.012 3.138 3.896 2.518 2.720 3.452 2.937 3.797 3.172 4.818 7.288 |0.773 0.681 0.601 0.661 0.577 1.469 2.133 4.363 4.887 1.138 1.294 1.665 1.886 5.492 6.886 8.599 0.442 0.417 0.315 10.699 12.839 15.407 1.149 1.319 1.513 1.980 2.261 10.147 1.732 1.801 6.261 7.988 0.555 0.481 0.239 0.183 0.140 0.084 0.065 1.161 1.346 1.558 2.079 2.397 4.177 5.474 7.138 9.266 11.974 0.377 0.312 0.215 0.375 0.295 0.233 0.146 0.412 0.308 0.231 0.174 | 0.099 0.057 0.033 0.208 0.142 0.097 0.046 0.073 0.051 0.037 | 0.026 0.092 0.059 0.038 | 0.024 0.016 | 0.010 0.020 0.012 0.007 0.004 0.005 0.003 0.001 0.001 Period 20 Period 25 Period 30 Period 40 13.743 19.461 27.393 Period 20 0.820 0.673 Period 25 0.780 Period 30 0.742 Period 40 0.672 0.453 0.554 0.456 0.149 1.220 1.806 2.653 3.386 4.292 4.322 | 5.743 10.063 7.040 10.286 21.725 45.259 93.051 188.884 378.721 750.378 1,469.772 4.661 38.338 95.396 17.449 29.960 50.950 85.850 143.371 237.376 6.727 9.646 1.486 1.641 2.191 3.207 0.610 0.478 1.282 2.094 2.666 6.848 10.835 17.000 26.462 40.874 62.669 1.348 1.811 2.427 3.243 0.307 0.022 0.011 1.489 2.208 3.262 4.801

Question

Imperial is considering investing in solar paneling for the roof of its large distribution facility. The investment will cost $9 million and have a six-year useful life and no residual value. Because of rising utility costs, the company expects the yearly utility savings to increase over time, as follows:

Year 1 ..... $1,000,000

Year 2 ..... $1,800,000

Year 3 ..... $2,000,000

Year 4 ..... $3,000,000

Year 5 ..... $4,400,000

Year 6 ..... $4,900,000

Company policy requires a payback period of less than five years and an ARR of at least

10%. Any potential investments that do not meet these criteria will be removed from further consideration. The solar panels have already passed the payback period and ARR screening.

1. Compute the NPV of the solar panels, given the company's 10% hurdle rate.

2. Estimate the IRR of the solar panels. Use Excel to find the exact IRR. (Round your answer to two decimal places.)

The IRR is somewhere between
The exact IRR using Excel is		%.

Should Imperial invest in the solar paneling? Why or why not?

The solar panel proposal meets (all or none or some) of the company's capital investment decisions. It has a payback of (less than or more than) five years and an ARR of (greater than or less than) 10%.
It has a (negative or positive) NPV which indicates that the IRR is (above or below) the company's 10% hurdle rate. Therefore, the solar panels appear to be a (good or poor) investment from a financial standpoint.

Present Value of Annuity of $1
Future Value of Annuity of $1
Periods
1%
2%
3%
4%
5%
6%
8%
10%
12%
14%
16%
18%
5%
Periods
Period 1
Period 2
Period 3
Period 4
Period 5
20%
1%
2%
3%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Period 1
Period 2
Period 3
Period 4
Period 5
0.980 0.971 0.962
1.942 1.913 1.886
2.884 2.829 2.775
3.808 3.717 3.630 3.546 3.465 3.312 3.170 3.037
4.713 4.580 4.452 4.329 4.212 3.993 3.791 3.605
5.601 5.417 5.242 3.889 3.685
6.472 6.230 6.002 5.786 5.582 5.206 4.868 4.564
7.325 7.020 6.733 6.463 6.210 5.747 5.335 4.968
8.162 7.786 7.435 7.108 6.802 6.247 5.759 5.328
8.983 8.530 8.111
0.952 0.943 0.926 0.909 0.893
1.859 1.833 1.783 1.736 1.690
2.723 2.673 2,577 2.487 | 2.402
0.990
0.877
0.862
0.847
0.833
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.970
2.941
3.902
4.853
2.060
3.184
4.375
1.647
2.020
2.080
3.246
4.506
5.867
1.605
1.566
2.120
2.140
2.160
2.180
2.200
1.528
2.106
2.010
2.030
3.091
2.040
2.050
2.100
2.322
2.246
3.060
3.310
3.374
3.440
4.921
2.174
3.030
3.122
3.153
3.640
3.506
5.066
3.572
2.914
2.798
2.690
2.589
4.060
4.122
4.184
4.246
4.310
4.641
4.779
5.215
5.368
3.433
3.274
3.127
2.991
5.101
5.204
5.309
5.416
5.526
5.637
6.105
6.353
6.610
6.877
7.154
7.442
Period 6
Period 7
Period 8
Period 9
Period 10 9.471
Period 6
Period 7
Period 8
Period 9
Period 10
5.795
5.076 4.917 4.623 4.355 4.111
3.498
3.326
6.152
6.308
6.468
6.633
6.802
6.975
7.336
7.716
8.115
8.536
8.977
9.442
9.930
4.288 4.039
4.639 4.344
7.662 7.898
3.812
4.078
9.487
10.637 11.436 12.300
10.730
13.233
9.369 9.755| 10.159 10.583 11.027 11.491 12.488 13.579 14.776 16.085
19.337
8.142
9.549
10.089
12.916
16.499
6.728
3.605
3.837
7.214 7.434
8.394
8.923
11.414
12.142
8.892
9.214
9.897
14.240
17.519
21.321
7.652
8.286
8.583
15.327
8.566
4.946
7.722 7.360 6.710 6.145 5.650 5.216
4.607
4.303
4.494
4.031
4.192
19.086
20.799
25.959
4.833
10.462 10.950 11.464 12.006 12.578
13.181 14.487 15.937 | 17.549
23.521
8.306 7.887 | 5.453
8.863 8.384 7.536 6.814 6.194 5.660
9.394 8.853 7.904 7.103 6.424
Period 11
Period 12
Period 13
Period 14
Period 15
14.207 14.972 16.645 18.531 20.655
Period 11 10.368 9.787 9.253 8.760
Period 12 11.255 10.575 9.954 9.385
Period 13 12.134 11.348 10.635 9.986
Period 14 13.004 12.106 11.296 10.563 9.899 9.295 8.244 7.367 6.628
Period 15 13.865 12.849 11.938 11.118 10.380 9.712 8.5597.606 6.811 6.142
7.139 6.495 5.938
11.567 12.169 12.808 13.486
12.683 13.412 14.192 15.026 15.917 16.870 18.977 21.384 24.133
13.809 14.680 15.618 16.627 17.713 18.882 21.495 24.523 28.029
14.947 15.974 17.086 18.292 19.599 21.015 24.215 27.975 32.393
16.097 17.293 18.599 20.024 21.579 23.276 27.152 31.772 37.280
4.327
28.755
32.150
39.581
5.029
4.656
23.045
25.733
5.197
4.793
4.439
27.271
30.850
34.931
5.842
5.342
4.910
4.533
32.089
36.786
42.219
48.497
6.002
4.611
37.581
43.842
50.818
60.965
5.468
5.008
59.196
43.672
51.660
5.575
5.092
4.675
72.035
Period 20 18.046 16.351 14.877 13.590 12.462 11.470 9.818 8.514 7.469 6.623
Period 25 22.023 19.523 17.413 15.622 14.094 12.783 10.675 9.077 7.843 6.873 6.097
Period 30 25.808 22.396 19.600 17.292 15.372 13.765 11.258 9.427 8.055 7.003
Period 40 32.835 27.355 23.115 19.793 17.159 15.046 11.925 9.779 8.244 7.105
Period 20 22.019 24.297 26.870 29.778 33.066 36.786 45.762 57.275 72.052
Period 25 28.243 32.030 36.459 41.646 47.727 54.865 73.106 98.347 133.334 181.871
Period 30 34.785 40.568 47.575 56.085 66.439 79.058 113.283 164.494 241.333 356.787
Period 40
5.929
5.353
4.870
91.025
115.380
146.628
186.688
342.603 471.981
530.312| 1,181,882
| 48.886 60.402 75.401 95.026 120.800 154.762 259.057 442.593 767.091 1,342.025 2,360.7574,163.213 7,343.858
5.467
4.948
249.214
6.177
6.233
5.517
790.948
4.979
4.997
5.548

Present Value of $1
Future Value of $1
Periods
Period 1
Period 2
Period 3
Period 4
Period 5
1%
2%
3%
4%
5%
6%
8%
10%
12%
14%
16%
18%
Periods
2%
3%
4%
5%
6%
8%
10%
12%
14%
16%
18%
20%
20%
0.847 0.833
0.718 0.694
0.609 0.579
0.516 0.482
0.437 0.402
1%
0.990 0.980 0.971 0.962
0.980 0.961
0.952 | 0.943 0.926
0.890 0.857
0.915 0.889 0.864 0.840 0.794
0.823 0.792 0.735
0.747 0.681
0.909 0.893 0.877
0.826 | 0.797 0.769
0.712 0.675
0.636 0.592
0.567
Period 1
Period 2
Period 3
Period 4
Period 5
0.862
1.010
1.020
1.030
1.040
1.050
1.060
1.080
1.100
1.120
1.140
1.160
1.180
1.200
0.943 0.925 0.907
0.743
1.020
1.030
1.040
1.061
1.093
1.126
1.159
1.082
1.103
1.124
1.158 1.191
1.166
1.210
1.300
1.346
1.561
1.254
1.392
1.440
0.971
0.942
0.751
0.641
1.061
1.260
1.331
1.482
1.125
1.170
1.405
1.574
1.762
1.643
1.939
2.288
1.728
2.074
2.488
0.961 0.924
0.888 0.855
1.360 1.464
1.216
1.276
0.683
0.552
1.082
1.104
1.041
1.262
1.689
1.811
0.951
0.906
0.863
0.822
0.784
0.621
0.519
0.476
1.051
1.217
1.338
1.469
1.611
1.925
2.100
Period 6
Period 7
Period 8
Period 9 0.914
Period 10 0.905 0.820
0.837 0.790 0.746
0.813 0.760
0.705 0.630
0.665 |
0.942 | 0.888
0.933
0.923 0.853 0.789
0.370 0.335
0.354 0.314| 0.279
0.305 0.266 0.233
0.263 0.225
0.227| 0.191
Period 6
Period 7
Period 8
Period 9
Period 10
0.564
0.507
0.456
0.410
1.062
1.126
1.194
1.265
1.340
1.419
1.587
1.772
1.974
2.195
2.436
2.700
2.986
0.711
1.504
0.583
0.677 0.627 0.540 | 0.467
0.645 0.592 0.500
0.614 0.558 0.463
0.513
0.452
0.400
1.072
1.083
1.149
1.230
1.407
1.949
2.211
2.502
2.853
1.316
1.714
2.826
3.185
3.583
0.731
0.404
0.351
1.172
1.267
1.369
1.477
1.594
2.476
3.278
3.803
1.851
2.144
3.759
4.300
0.766 0.703
1.999
2.159
0.837
0.424
0.361
0.308
0.322 | 0.270
0.194
1.195
1.219
1.094
1.305
1.423
1.551
1.689
2.358
2.773
3.252
4.435
5.160
0.744
0.676
0.386
0.162
1.105
1.344
1.480
1.629
1.791
2.594
3.106
3.707
4.411
5.234
6.192
0.195 0.162| 0.135
0.137
Period 11 0.896
Period 12 0.887 0.788
Period 13 0.879
Period 14 0.870 0.758
Period 15 0.861 0.743 0.642
Period 11
Period 12
Period 13
Period 14
Period 15
0.804
0.722 0.650
0.527 0.429
2.332 2.853
0.585
0.557
0.530
0.505
0.350
0.287
0.237
0.208 0.168
0.229 0.182 0.145 0.116 0.093
0.205 0.160 0.125 0.099 0.078
| 0.108
1.116
1.243
1.384
1.898
4.226
6.176
7.430
8.916
1.539
1.710
3.479
5.117
5.936
0.701
0.497 0.397
0.368 0.290
0.340 0.263
0.625
0.319
0.112
1.127
1.268
1.426
1.601
1.796
2.012
3.138
3.896
2.518
2.720 3.452
2.937 3.797
3.172
4.818
7.288
|0.773
0.681 0.601
0.661 0.577
1.469
2.133
4.363
4.887
1.138
1.294
1.665
1.886
5.492
6.886
8.599
0.442
0.417 0.315
10.699
12.839
15.407
1.149
1.319 1.513
1.980
2.261
10.147
1.732
1.801
6.261
7.988
0.555
0.481
0.239
0.183 0.140
0.084 0.065
1.161
1.346
1.558
2.079
2.397
4.177
5.474
7.138
9.266
11.974
0.377 0.312 0.215
0.375 0.295 0.233 0.146
0.412 0.308 0.231 0.174 | 0.099 0.057 0.033
0.208 0.142 0.097 0.046
0.073 0.051 0.037 | 0.026
0.092 0.059 0.038 | 0.024 0.016 | 0.010
0.020 0.012 0.007 0.004
0.005 0.003 0.001 0.001
Period 20
Period 25
Period 30
Period 40
13.743 19.461 27.393
Period 20 0.820 0.673
Period 25 0.780
Period 30 0.742
Period 40 0.672 0.453
0.554
0.456
0.149
1.220
1.806
2.653
3.386 4.292
4.322 | 5.743 10.063
7.040 10.286 21.725 45.259 93.051 188.884 378.721 750.378 1,469.772
4.661
38.338
95.396
17.449 29.960 50.950 85.850 143.371 237.376
6.727
9.646
1.486
1.641
2.191
3.207
0.610
0.478
1.282
2.094
2.666
6.848 10.835 17.000 26.462 40.874 62.669
1.348
1.811
2.427
3.243
0.307
0.022
0.011
1.489
2.208 3.262
4.801

Accepted Answer

Net Present Value: It is the difference between the present values of cash inflows and cash…