Julian owns a three-storey house in Yuen Long and wishes to install solar panels on its...

  

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Julian owns a three-storey house in Yuen Long and wishes to install solar panels on its 250 m² roof for electricity generation. An engineering company quoted a unit price of $1,800/m² for the supply and installation of solar panels. This installation could save Julian $38,000 per year on the electricity fee. Based on the additional information provided below, advise on the financial viability of this installation if the discount rate is 3%. - Design life of the house: 80 years Design life of the solar panels: 30 years (after which no maintenance is required) Replacement costs: 90% of the initial cost - - - No. of solar panels installed: 125, each measuring 2 m x 1 m Annual replacement of solar panels: 5% of the total number of panels at $2,500/panel (with maintenance still required during the years in which replacements occur) Maintenance cost: $5,000 (to be paid at the end of each year) Dismantling costs: $20,000 Salvage value: $48,000 (b) Three years ago, Yvonne acquired land in Tin Hau and constructed a three-storey house on it to run a staycation business. Each floor contains six rooms of varying sizes, and the total lettable floor space is 250 m². According to previous accounting records, the average rental price of this three-storey house is $65/ft²/month (based on the lettable floor space), and the occupancy rate is 85%. The yield of similar properties in the region is 2.55%. Considering a change in market conditions, Yvonne has prepared a proposal to redevelop this property into a four-storey hotel. The details are provided below. The redevelopment will cost Yvonne $1.5M for demolishing the existing building and $28M for constructing the hotel, and she will pay a design fee amounting to 6.5% of the construction cost. Because of the change in land use, the government will charge her an additional land premium of $21M. Additionally, the required finance charge is $0.9M, and the loss of income during redevelopment will be $10.5M. Upon completion, Yvonne can rent the property out at $200,000/floor/month with an expected occupancy rate of 82%. The yield of comparable properties is 2.75%. For both types of development, it is assumed that annual rental incomes are received at the beginning of each year. Advise whether the proposed change is financially feasible. (c) Further to section (b) above, explain possible catalysts that caused Yvonne to realise the change of land use. (d) Kelvin has recently bought an apartment in Hung Hom. He plans to secure a loan of $18M from a bank and repay it in 15 years, with a mortgage rate of 2.5% p.a. If he chooses to extend the repayment period to 20 years, how much more will he need to pay each month and how much will the total interest be? Julian owns a three-storey house in Yuen Long and wishes to install solar panels on its 250 m² roof for electricity generation. An engineering company quoted a unit price of $1,800/m² for the supply and installation of solar panels. This installation could save Julian $38,000 per year on the electricity fee. Based on the additional information provided below, advise on the financial viability of this installation if the discount rate is 3%. - Design life of the house: 80 years Design life of the solar panels: 30 years (after which no maintenance is required) Replacement costs: 90% of the initial cost - - - No. of solar panels installed: 125, each measuring 2 m x 1 m Annual replacement of solar panels: 5% of the total number of panels at $2,500/panel (with maintenance still required during the years in which replacements occur) Maintenance cost: $5,000 (to be paid at the end of each year) Dismantling costs: $20,000 Salvage value: $48,000 (b) Three years ago, Yvonne acquired land in Tin Hau and constructed a three-storey house on it to run a staycation business. Each floor contains six rooms of varying sizes, and the total lettable floor space is 250 m². According to previous accounting records, the average rental price of this three-storey house is $65/ft²/month (based on the lettable floor space), and the occupancy rate is 85%. The yield of similar properties in the region is 2.55%. Considering a change in market conditions, Yvonne has prepared a proposal to redevelop this property into a four-storey hotel. The details are provided below. The redevelopment will cost Yvonne $1.5M for demolishing the existing building and $28M for constructing the hotel, and she will pay a design fee amounting to 6.5% of the construction cost. Because of the change in land use, the government will charge her an additional land premium of $21M. Additionally, the required finance charge is $0.9M, and the loss of income during redevelopment will be $10.5M. Upon completion, Yvonne can rent the property out at $200,000/floor/month with an expected occupancy rate of 82%. The yield of comparable properties is 2.75%. For both types of development, it is assumed that annual rental incomes are received at the beginning of each year. Advise whether the proposed change is financially feasible. (c) Further to section (b) above, explain possible catalysts that caused Yvonne to realise the change of land use. (d) Kelvin has recently bought an apartment in Hung Hom. He plans to secure a loan of $18M from a bank and repay it in 15 years, with a mortgage rate of 2.5% p.a. If he chooses to extend the repayment period to 20 years, how much more will he need to pay each month and how much will the total interest be?

Answer rating: 100% (QA)

a Financial Viability of Installing Solar Panels on Julians House To assess the financial viability of installing solar panels on Julians house we need to calculate the net present value NPV of the in... View the full answer