Connelly Industries is evaluating investing in solar panels to provide some of the electrical needs of its main office building in Orlando, Florida. The solar panel project would cost $ 475,000 and would provide cost savings in its utility bills of $ 35,000 per year. It is anticipated that the solar panels would have a life of 15 years and would have no ­residual value.

1. Calculate the payback period in years for the solar panel project.
2. If the company uses a discount rate of 8%, what is the net present value of this project?
3. If the company has a rule that no projects will be undertaken that have a payback period of more than five years, would this investment be accepted? If not, what arguments could managers make to get approval for the solar panel project?
4. What would you do if you were in charge of approving capital investment proposals?

  • CreatedAugust 27, 2014
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