Because you live in a southern, warm-weather climate, your electricity bill is very large for about eight months of the year due to the need for air conditioning. You have been approached by an agency that would like to assist you in installing solar panels to provide electricity to run your air conditioning. You were also considering adding additional insulation to your house. You also have the option of doing nothing. Which of the following options would you choose based on the given data?

Do nothing.

If there were a tax credit for installing the solar collector in the year in which it was installed, how much of a tax credit (in % of initial investment) would be required to make the solar collector alone a worthwhile investment?

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Install only the solar collector. Install only the insulation. Install both the solar collector and the insulation. Data (all figures in $thousands) Purchase and installation cost of solar collector Purchase and installation of insulation Current cooling bill Expected savings from insulation alone Expected savings from solar collector alone Expected savings from insulation and solar collector Other maintenance on house Assessed value of house (2007) Interest rate of savings if do not spend money Number of years assumed lifetime of insulation and solar collector15 25 5 2.5/y 0.9/y 2.0/y 2.5/y 2.0/y 300 6.5% p.a.