Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN: 9781305506381
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
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Question
Chapter 2, Problem 3E
To determine
To calculate: The optimal capital budget.
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A university spent $1.5 million to install solar panels atop a parking garage. These panels will have a capacity of 700 kilowatts (kW) and have a life expectancy of 20 years. Suppose that the discount rate is 10%, that electricity can be purchased at $0.10 per kilowatt-hour (kWh), and that the marginal cost of electricity production using the solar panels is zero.
Hint: It may be easier to think of the present value of operating the solar panels for 1 hour per year first.
Approximately how many hours per year will the solar panels need to operate to enable this project to break even?
1,006.80
2,516.99
3,020.39
3,272.09
If the solar panels can operate only for 2,265 hours a year at maximum, the project (would/would not) break even.
Continue to assume that the solar panels can operate only for 2,265 hours a year at maximum.
In order for the project to be worthwhile (i.e., at least break even), the university would need a grant of at least…
Chapter 2 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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