Net Present Value Calculations

[ron]

For a solar project, the payment options are one time payment for $10,000 or $79 per month for 20 years. Both include full warrenty for equipment, labor and energy output from the installer.

I'm no good at making the comparison. Since interest rates and the market's performance is so terrible for now, it almost seems that the comparison should be done with a very low interest rate, like 2-4%.

 

[jghrist]

Use Excel's RATE(Nper,Pmt,Pv,,,Guess) function. With Nper=12*20, Pmt=79, Pv=-10000, Guess=1%, it returns 0.604% per month or 7.24% per year as the rate which makes the one-time payment equivalent to the monthly payment option. If you can borrow for less than 7.24%, you're better off with the one-time payment.

 

[ron]

Use Excel's RATE(Nper,Pmt,Pv,,,Guess) function. With Nper=12*20, Pmt=79, Pv=-10000, Guess=1%, it returns 0.604% per month or 7.24% per year as the rate which makes the one-time payment equivalent to the monthly payment option. If you can borrow for less than 7.24%, you're better off with the one-time payment.

Sounds reasonable.

Thanks