Question: A renewable energy system is being evaluated by an office building, its initial cost is $25,850. This system is estimated to provide energy savings equivalent to a cut-off of $5,250 from the annual electricity bill. Annual operation and maintenance costs are estimated to be just $830. This system has a useful life of 10 years with no salvage value.
1. What is the Internal Rate of Return (IRR) of this renewable energy system ?
If you know that the building owner can sell electricity to the grid during weekends and holidays scoring a reinvestment rate of 10%.
2. What is the Adjusted Internal Rate of Return (AIRR) for this renewable energy system ?
3. If you know that the building owner uses a MARR equals to 12%, would you recommend he uses that energy system?