You are considering whether to install a solar panel heating system to heat your hot water in

addition to your normal oil fueled boiler as there is a grant available toward the cost of the

system. The cost of the systems is estimated to be $7000.$Your current oil bill is in the region

of $1200$ per annum of which you estimate that $40\%$ relates to hot water alone. Oil prices are

expected to increase by an average of $12\%$ per annum for the foreseeable future. There is a

grant of $1000$ towards the cost of the system and this can be claimed at the beginning of the

project.

The finance cost of the system is going to be $6\mathrm{.}0\%$

Required

$($a$)$ Evaluate the economic cost of the system using Discounted Payback, NPV and

Internal Rate of Return over a $10-$year period. Would you advise installing the

system? Provide reasons for your decision.

$($b$)$ Discuss the problems associated with using investment appraisal methods such as

those outlined in this scenario.