Question 2:
As we discussed in class, we can think about PDV (Present Discounted Value) analysis as a
way to standardize, or convert, monetary values from different points in time. The motivation
for PDV is that a dollar today is not worth a dollar tomorrow. However, as we also discussed,
PDV analysis is highly sensitive to discount rates. Consider a household in Ohio that chooses
to invest in solar panels. The solar panels cost a one-time amount of $12,000 up front, and the
benefit of the panels is $1000 per year. Calculate the year that the solar panels pay for
themselves (PDV positive). Use three different discount rates: 3%,5%, and 10%. You can use
Excel for your calculation (it is much simpler with Excel) and then just print out the PDV of
each year's annual benefit, under each discount rate. Please make sure to state any assumptions
you make. Hint: "Never" is an entirely appropriate answer.