HOW IS THE ROI, IRR, NPV AND PROFITABILITY INDEX CALCULATED? The following is a
ID: 2802047 • Letter: H
Question
HOW IS THE ROI, IRR, NPV AND PROFITABILITY INDEX CALCULATED?
The following is a cost estimate for a solar electric system that provides 50% of electricity, using a monthly electric bill of S150 with PSE&G; as the utility: ESTIMATED SYSTEM COST This is only an estimate based upon many assumptions. Installation costs can vary considerably We encourage you to work with a Solar Pro who can provide you with a more detailed cost estimate. We estimate that a 4 kW peak DC power system will cost between $13,132 and $19,698. This estimate assumes the mid-point of this cost range $16,415 Assumed Installation Gross Cost: Gross Cost is the cost before any rebates, incentives, tax credits, etc. are applied. See the Cost Notes, below assuming $4.69 per watt DC FINANCIAL INCENTIVES Financial incentives shown are totals across all years. So, if an incentive spans multiple years then the value shown is the total of all years. For details, please refer to the table below "Cash Flow by Year and Cumulative Across Years" NJ: Solar Renewable Energy Certificates (SREC) » link Federal Tax Credit (30% of Net Cost at Installation) » link ESTIMATED NET COST ESTIMATED NET COST AT INSTALLATION: Cash &Loan; Amounts S 9,515 S 4,925 1,975 $ 11,490 S 11.490 Cash Loan Monthly Payment (6.5% apr, 30 years; S 0Explanation / Answer
ROI IS RETURN ON INVESTMENT AND IT IS CALCULATED BY THE FOLLOWING FORMULA:
ROI = (NET PROFIT/TOTAL INVESTMENT)*100
IRR IS INTERNAL RATE OF RETURN AND IT IS CALCULATED BY THE FORMULA :
IRR = R1 + ((NPV1 x (R2 - R1)) / (NPV1 - NPV2)); where R1 and R2 are the randomly selected discount rates, and NPV1 and NPV2 are the higher and lower net present values, respectively
NPV IS NET PRESENT VALUE AND I IS CALCULATED AS FOLLOWS :
NPV = C x {(1 - (1 + R)-T) / R} Initial Investment
where C is the expected cash flow per period, R is the required rate of return, and T is the number of periods over which the project is expected to generate income
PROFITABILITY INDEX IS CALCULATED AS FOLLOWS :
/Initial Investment Required
Profitability Index = Present Value of Future Cash Flows/Initial Investment Required
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