Lesson 7 Solar Finance

Question 1

Present Value

Answer 1

specifies worth for assets,where the worth is in today’s dollars, provided the rate of return is specified (as “d”). The value is processed from year “n” back to “year zero” (meaning the present)

PV = FV/(1+d)ⁿ

Question 2

Future Value

Answer 2

specifies the worth for things as a dollar value in the future. We use FV for Fuel Costs (FC) and Fuel Savings (FS). Costs are represented as “C” and Savings as “S.” The rate of inflation is specified here as “i.”

FV = C * (1+i)^n-1

Question 3

Present Worth

Answer 3

This is the ratio of the future costs with respect to the discount rate over time.

Pw_n = C * (1 + i)^n-1 / (1 + d)ⁿ

Question 4

Nominal Discount Rate

Answer 4

discount rates for time value of money that are not adjusted for the effects of inflation. (Nominal = not inflation-adjusted).

d_n = [(1 + d_r) * (1 + i)] - 1

Question 5

Real Discount Rate

Answer 5

the discount rate where the rate of inflation has been adjusted, by excluding the effect of inflation. As such a real discount rate will be a lower value than the nominal discount rate for inflation. (Real = inflation-adjusted)

d_r = [(1 + d_n)/ (1 + i)] -1