We appreciate your visit to ABC Solar is considering investing in solar panels for their factory to reduce energy costs They can purchase a solar panel system for 60 000. This page offers clear insights and highlights the essential aspects of the topic. Our goal is to provide a helpful and engaging learning experience. Explore the content and find the answers you need!
Answer :
Yes, ABC Solar should invest in the solar panel system.These factors, along with the potential savings from reduced energy consumption, make the solar panel system a worthwhile investment for ABC Solar.
To determine if ABC Solar should invest in the solar panel system, we need to analyze the return on investment (ROI) it would provide. ROI is calculated as follows:
ROI = (Net Profit from Investment - Cost of Investment) / Cost of Investment
In this case, the cost of the solar panel system is $60,000, and it is expected to generate annual savings of $15,000. To calculate the net profit, we subtract the annual savings from the initial cost:
Net Profit = Initial Cost - Annual Savings
Net Profit = 60,000 - 15,000
Net Profit = 45,000
Now, we can plug these values into the ROI formula:
ROI = (45,000 - 60,000) / 60,000
ROI = (-15,000) / 60,000
ROI = -0.25
A negative ROI indicates that the investment is not profitable. However, this calculation does not take into account the long-term benefits of the solar panel system, such as the gradual decrease in energy costs over time and the potential increase in the value of the factory due to the environmentally-friendly investment.
These factors, along with the potential savings from reduced energy consumption, make the solar panel system a worthwhile investment for ABC Solar.
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