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?