So Design 2: Mechanized Solar Panels is the best option. Formula value/(1+0.1)^y

Question

So Design 2: Mechanized Solar Panels is the best option.

Formula value/(1+0.1)^year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 NPV Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 -87 6.9 7.452 8.04816 8.692013 9.387374 10.13836 10.94943 11.82539 12.77142 13.79313 14.89658 16.08831 17.37537 18.7654 20.26664 21.88797 23.639 25.53012 27.57253 29.77834 -2 -2.25 -2.5 -2.75 -3 -3.25 -3.5 -3.75 -4 -4.25 -4.5 -4.75 -5 -5.25 -5.5 -5.75 -6 -6.25 -6.5 -6.75 -87 6.272727 6.158678 6.046702 5.936762 5.828821 5.722842 5.61879 5.516631 5.416328 5.317849 5.221161 5.126231 5.033027 4.941517 4.851672 4.763459 4.676851 4.591817 4.50833 4.42636 -1.81818 -1.8595 -1.87829 -1.87829 -1.86276 -1.83454 -1.79605 -1.7494 -1.69639 -1.63856 -1.57722 -1.5135 -1.44832 -1.38249 -1.31666 -1.25137 -1.18707 -1.12412 -1.0628 -1.00334 NPV -11.9023 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 NPV Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 -101 8.8 9.504 10.26432 11.08547 11.9723 12.93009 13.96449 15.08165 16.28819 17.59124 18.99854 20.51842 22.1599 23.93269 25.8473 27.91509 30.1483 32.56016 35.16497 37.97817 -0.3 -0.6 -0.9 -1.2 -1.5 -1.8 -2.1 -2.4 -2.7 -3 -3.3 -3.6 -3.9 -4.2 -4.5 -4.8 -5.1 -5.4 -5.7 -6 -101 8 7.854545 7.711736 7.571522 7.433858 7.298697 7.165993 7.035703 6.907781 6.782185 6.658872 6.537802 6.418933 6.302225 6.187639 6.075137 5.964679 5.856231 5.749754 5.645213 -0.27273 -0.49587 -0.67618 -0.81962 -0.93138 -1.01605 -1.07763 -1.11962 -1.14506 -1.15663 -1.15663 -1.14707 -1.12969 -1.10599 -1.07726 -1.04462 -1.00901 -0.97124 -0.932 -0.89186 NPV 14.98236 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 NPV Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 -91 9.1 9.828 10.61424 11.46338 12.38045 13.37089 14.44056 15.5958 16.84346 18.19094 19.64622 21.21791 22.91535 24.74858 26.72846 28.86674 31.17608 33.67016 36.36378 39.27288 -3 -3.35 -3.7 -4.05 -4.4 -4.75 -5.1 -5.45 -5.8 -6.15 -6.5 -6.85 -7.2 -7.55 -7.9 -8.25 -8.6 -8.95 -9.3 -9.65 -91 8.272727 8.122314 7.974636 7.829642 7.687285 7.547516 7.410289 7.275556 7.143273 7.013396 6.885879 6.760682 6.63776 6.517074 6.398581 6.282243 6.168021 6.055875 5.945768 5.837663 -2.72727 -2.7686 -2.77986 -2.7662 -2.73205 -2.68125 -2.61711 -2.54247 -2.45977 -2.37109 -2.27821 -2.18262 -2.08558 -1.98815 -1.8912 -1.79544 -1.70146 -1.60974 -1.52062 -1.43441 NPV 3.833071

Explanation / Answer

Florida Power and Light has committed to building a solar power plant. JoAnne, an IE working for FPL, has been tasked with evaulating three current designs. FPL uses an interest rate of 10% and a 20-year horizon.

Design 1: Flat Solar Panels

A field of "flat" solar panels angeled to best catch the sun will yield 2.6 MV of power and will cost $87 million initially with first-year operating costs at $2 million, growing $250,000 annually. It will produce electricty worth $6.9 million the first year and will increase 8% each year thereafter.

Design 2: Mechanized Solar Panels

A field of mechanized solar panels rotates from side to side so that they are always positioned parallel to the sun's rays, maximizing the production of electricty. This design will yield 3.1MV of power and will cost $101 million initially, growing $300,000 annually. It will produce electricity worth $8.8 million the first year and will increase 8% each year thereafter.

Design 3: Solar Collector Field

This design uses a field of mirrors to focus the sun's rays onto a boilter mounted in a tower. The boiler then produces steam and generates electricty the same way a coal-fired plant operates. This system will yield 3.3 MV of power and will cost $91 million initally with first-year operating costs at $3 million, growing $350,000 annually. It will produce electricity worth $9.1 million the first year and will increase 8% each year thereafter.

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