If the expected rate of return for the company equals 8%, the maximum amount of initial investment that makes this a desirable and profitable project is <u>$11,385.20</u>.
<h3>What is the present value?</h3>
The present value is the discounted value of some future cash flows. It is computed using the present value formula or table. It can also be computed using an online finance calculator as follows:
For this project, we first calculate the future value of the cost-savings from the solar project based on $20,000 and 5% increases for 20 years as follows.
N (# of periods) = 20 years
I/Y (Interest per year) = 5%
PV (Present Value) = $20,000
PMT (Periodic Payment) = $0
Results:
FV = $53,065.95 ($20,000 + $33,065.95)
Total Interest = $33,065.95
Thereafter, we compute the present value of the above future value based on an 8% expected rate of return as follows:
N (# of periods) = 20 years
I/Y (Interest per year) = 8%
PMT (Periodic Payment) = $0
FV (Future Value) = $53,065.95
Results:
PV = $11,385.20
Total Interest = $41,680.75
Thus, if the expected rate of return for the company equals 8%, the maximum amount of initial investment that makes this a desirable and profitable project is <u>$11,385.20</u>.
Learn more about future values at brainly.com/question/24703884
