4. If the retrofit project is financed with a bank loan, what should be the loan interest...
Question:
4. If the retrofit project is financed with a bank loan, what should be the loan interest rate so that the annual energy savings are able to pay back the annual loan payments?
Assume an increase on the natural gas unit price and electricity of 3% annually; assume an inflation rate of 0%. (Hint: use an IRR analysis (or RATE), once you transform your inflows (savings) to annualized payments).
5. Carbon emissions reductions through energy retrofitting measures (optional question/ additional grading points): Due to the low cost of energy in Canada, energy retrofitting measures are (usually) not financially profitable. A carbon emissions reduction financial incentive could provide additional motivation to homeowners to undertake such energy savings measures.
a. Evaluate the proposed energy retrofitting measures based on a Life Cycle Costing (LCC) analysis, if an incentive of 50$/ton CO2,red is available ($50 for every ton CO2 that was reduced through the energy retrofitting measures) for the carbon emissions savings (in tonnes CO2) that were achieved through your energy retrofitting measures. The financial incentive is subject to a 2% increase every year. An increase on the natural gas unit price and electricity of 3% annually and an inflation rate of 2% is expected. (Hint: add the carbon emissions incentive value to the inflows of case 3 previously and find the new NPV, or PW).
b. It is argued that if the value of the carbon emissions reductions incentive is increased, more homeowners will be willing to undertake energy retrofitting measures. In the case that your NPV under a) previously is negative, what should be the value of the carbon incentive (in $/ton CO2,red) so that the NPV of your cash flow is zero? (Hint: let x= value of the incentive in $/ton CO2,red, set the NPV to zero and solve for x). Use the following information for your calculations: ?
Assume 25 years for the lifetime of the retrofitting measures. ? Use an interest rate of 4% for your calculations. You may use your personal MARR (e.g., an interest rate that you use for your investments). ? You may (or may not) want to add a salvage value to the insulation (e.g., 10% of the initial value), since insulation upgrades may last up to 40 years. the photo shows the reulte of quotations 1,2,3. you just need to answer 4 and 5
Expert Answer:
4 Loan Interest Rate for Annual Energy Savings to Pay Back Loan To determine the loan interest rate needed for annual energy savings to pay back the l... View the full answer
Intermediate Accounting
ISBN: 978-0470161012
9th Canadian Edition, Volume 2
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield.
