We consider replacing an existing electrical water heater with an array of solar panels. The
net installed investment.cost of the panels is $1,400 ($2,000 less a 30% tax credit from the
government). Based on an energy audit, the existing water heater uses 200 kilowatt hours
(kWh) of electricity per month, so at $0.12 per kWh, the cost of operating the water heater is
$24 per month. Assuming the solar panels can save the entire cost of heating water with
electricity, answer the following questions.
What equation can you use to find the IRR of this investment if the solar panels have a
life of 10 years?
A) 0 = -$1,400 + $24 (P/A, i% per year, 10 years)
B) 0 = -$1,400 + $24 (A/P, i% per month, 120 months)
C) 0 = -$1,400 + $24 (P/A, i% per month, 120 months)
D) 0 = -$1,400 + $24 (A/P, i% per year, 10 years)