Monteiro Industries is evaluating investing in solar panels to provide some of the electrical needs of its main office building in Green Bay, Wisconsin. The solar panel project would cost $ 575,000 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 20 years and would have no ­residual value.

1. Calculate the payback period in years of the solar panel project.
2. If the company uses a discount rate of 12%, 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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