Reference no: EM132634747

An international company is economically evaluating to substitute an existing electrical water heater with an array of solar panels. The net installed investment cost of the panels is $1,550. Operating costs for this new technology will be $4 per month. Based on an energy audit, the existing water heater uses 20 kilowatt hours (kWh) of electricity per month at $0.13 per kWh. It has been estimated that starting from the beginning of third year, expenses will increase by $4 dollars every coming year for the next five years, after which the expenses will continue to increase by six dollars every coming year until the end of year tenth of the project lifetime. After that there are no operating costs, because of maintenance, that will be provided for the two coming years. The management believes that all this long maintenance service will cost $350 and will be paid by the end of year 15. On the other hand, if sold at the end of its 15 years of useful life the electrical water heater can generate a $100 as a market value.

Question a. Draw the cash flow diagram if the solar panels have a lifetime of 15 years?

Question b. What is AW of this project at MARR=7% if the solar panels have a lifetime of 15 years? Explain the meaning of AW for this project.

Question c. Explain and justify your answer of b. using your words