Question 5

Installing a solar panel system on your roof comes with a total upfront cost of $13,000 after all tax credits. If the solar panels reduce your utility bill by $1300 per year, what is the Payback Period of installing the solar panel system? Round to one decimal place.

Question 6

A project has an initial cost of $46,000 and is expected to generate a single cash inflow of $104,000 in 4 years. What is its IRR? Round to the tenth of a percent (e.g. 5.6%=5.6).

Question 7

You want to start an organic garlic farm. The farm costs $220,000, to be paid in full immediately. Year 1 cash inflow will be $25,000, after which the inflows are expected to grow at a 5% annual rate until the end of year 5 when you anticipate selling the farm for $300,000 (at the end of year 5 you get both the cash inflow from operations and from selling the farm). What is the IRR of your garlic farm investment? Round to the tenth of a percent (e.g. 5.6%=5.6). [Hint: You'll want to solve this in Excel using the IRR function or Goal Seek. Make sure the IRR cell is set to show decimals.]