A local community church is contemplating installment of solar cells on its roof and sell the access electricity to the Ontario grid via a power purchase agreement. The project requires an initial investment of $75 000 with a residual value of $2000 after 10 years. It is estimated to yield annual net returns of $15 000 for 10 years. What is the NPV of the project given a rate of return of 7%?
A) -$31 370
B) $32 387
C) $31 370
D) -$32 387
E) $1017

Question

Quizplus · Accepted Answer

We can calculate the NPV of the project as follows:

CF0 = -75,000 (initial investment)
CF1-CF10 = 15,000 (annual net returns)
CF11 = 17,000 (residual value)

Using a financial calculator or spreadsheet, we can find that the NPV of the project is $31,370. Since this is a positive value, the project is expected to be profitable and a good choice for the community church. Therefore, the best choice is C.

A Local Community Church Is Contemplating Installment of Solar Cells