Problem
Photovoltaic solar panels for a house cost $30,000 to buy and install. After installing them, solar panels provide electricity worth $2500 per year at prevailing electricity prices. For simplicity, assume solar panels last forever and require no maintenance, and that electricity prices are not expected to change.
i. What is the present value of the solar installation project assuming a discount rate of 10%?
ii. Given your answer in (i), is project worthwhile? Explain.
iii. What is the present value of the project if the discount rate is 5% instead of 10%?