Question 2 - Financial Information

Question 1

Q2A) A CEO wants to install 100 kW of solar PV on roof.
Capital Cost = £30,000
It Generates 70,000 kWh of electricity
Electricity unit price = xx £0.12
Annual inflation of 10%

-Calculate the simple payback period

Answer 1

1- Simple Payback =
Initial investment / Annual Savings
Annual Savings = Electrical x Unit Price = £8400
Simple Payback period =
£30,000 / 8400 = 3.57 Years

Question 2

Q2B) A CEO wants to install 100 kW of solar PV on roof.
Capital Cost = £30,000
It Generates 70,000 kWh of electricity
Electricity unit price = xx £0.12
Annual inflation of 10%

-Calculate the Gross return on capital
-Calculate the Net return on capital

Answer 2

Make Table to configure all these values

Year Revenue DisFac 10% Earnings
0 -30,000
1 +8400 0.909 £7635.6

When table is filled out the following can be calculated

**Gross Return Capital =
Total Gain in Revenue / Capital x 100
42,000 / 30,000 x 100 = 140%

**Net Return Capital
Total Gain in revenue - capital / capital x 100
(42,000 - 30,000) / 30,000 = 40%

Question 3

Q2C) A CEO wants to install 100 kW of solar PV on roof.
Capital Cost = £30,000
It Generates 70,000 kWh of electricity
Electricity unit price = xx £0.12
Annual inflation of 10%

-Calculate the Gross annual rate of return
-Calculate the Net Average annual rate of return

Answer 3

Once the Gross and Net return on capital is calculated, the annual rate of return can be calculated

**Gross Annual Rate of Return
Gross return Capital / Lifetime
140 / 5 = 28%

**Net Annual Rate of Return
Net Return Capital / Lifetime
40 / 5 = 8%

Question 4

Q2D) A CEO wants to install 100 kW of solar PV on roof.
Capital Cost = £30,000
It Generates 70,000 kWh of electricity
Electricity unit price = xx £0.12
Annual inflation of 10%

-What is the net present value over 5 years.

Answer 4

Add to the following table, the discount factor and earnings.

Year Revenue DisFac 10% Earnings
0 -30,000
1 +8400 0.909 £7635.6

The discount factor can be calculated by using the following equation
Discount factor = ‘1’ / (1 + 10%)
Year 1 Discount =0.909
To calculate 2nd year discount fig just replace the ‘1’ with the new year 1 discount factor

0.909 / (1+0.1) = 0.8263

Once the earnings are calculated over the lifetime, the NPV can be calculated

Total Earnings - Capital costs = NPV

= - 3380