"Jim Thomlinson" wrote:
The FV formula assumes a consistent payment amount and a compouding
rate of interest.

That's a very narrow understanding of the FV formula. I think you missed
the point of my explanation. Perhaps if you study it again with a more open
mind, it will click. Otherwise, my approach does not further your
understanding. There is no benefit to you by my continuing to try.


If the net present value of the future cash flows is greater than the
present
cost of the asset then you are financially haead to purchase the asset.

That is certainly one approach. It is not the only approach. And it is not
Kyle's approach, if I understand his question correctly. If I do (and only
Kyle can say yea or nay), your argument is with Kyle, not with me.


----- original message -----

"Jim Thomlinson" wrote in message
...
The FV formula assumes a consistent payment amount and a compouding rate
of
interest. The person buying the solar array is not investing (or spending)
a
consistent amount of money. The person buying the array is anticipating
spending 5% more each year. Your assumption is that the 5% is the
compounding
rate of interest. If the person buying the array was anticipating saving
the
same amount of money each year and investing that at 5% then your method
would be valid but I think that interpretation is a bit of a stretch.

I assumed the classic accounting question of do I buy the machine. If the
net present value of the future cash flows is greater than the present
cost
of the asset then you are financially haead to purchase the asset.
--
HTH...

Jim Thomlinson


"Joe User" wrote:

"Jim Thomlinson" wrote:
Are you sure that is correct.

Yes; and you could confirm that yourself with less than 60 seconds of
effort.

But first, you need to understand my interpretation of the problem for
which
I provided a solution. I believe that Kyle is asking: what is the sum
of
the cost (or cost saving?) over 30 years if the cost (or cost saving?)
the
first year is $0.17 times 21,128 kWh, and the cost (or cost saving?)
increases 5% each year.

If you disagree that that is what Kyle asked for, fine. We simply have a
difference of opinion of the definition of the problem. If you disagree
with Kyle that that's the problem to solve, that's another matter
altogether. I am simply saying that FV solves my interpretation of
Kyle's
problem.

To demonstrate....

Let A1 be the cost the first year: =21128*0.17. Let A2 be the cost the
second year: =21128*0.17*(1+5%). But that's just: =A1*(1+5%). Let A3
be
the cost the third year: =21128*0.17*(1+5%)*(1+5%). But that's just:
=A2*(1+5%). So drag A2 down through A30. Then =SUM(A1:A30) is the total
cost (or cost saving?) over 30 years.

Now compare that SUM with FV(5%,30,-0.17*21128,0). QED.


FV is normally used to calculate the future value of an investment.

Fred is better at explaining the concepts behind this. I can only
explain
the algebra.

Consider an investment of P dollars at the end of each year, with a
growth
rate of 5%. At the end of the second year, the investment value is
P*(1+5%)+P. At the end of the third year, the value is
(P*(1+5%)+P)*(1+5%),
which is P*(1+5%)^2 + P*(1+5%) + P. At the end of thirty years, the
value
is P*(1+5%)^29 +...+ P*(1+5%) + P. FV(5%,30,-P,0) is the result of the
sum.

Now consider my interpretation of Kyle's problem. The cost (or cost
saving?) in the first year is P, where P=kWh*$0.17. The cost in the
second
year is P*(1+5%), as demonstrated by the A1:A30 model above. The cost in
the second year is P*(1+5%)^2. The cost in year 30 is P*(1+5%)^29. The
total cost (or cost saving?) over 30 years is P + P*(1+5%) +...+
P*(1+5%)^29.

Look familiar? QED.


----- original message -----

"Jim Thomlinson" wrote in
message
...
Are you sure that is correct. FV is normally used to calculate the
future
value of an investment. That is if I put money into a retirement
investment
every year for the next 20 years with the interest compunding how much
money
will I have to retire on. That does not seem to apply to this
situation.
--
HTH...

Jim Thomlinson


"Joe User" wrote:

"Kyle P." wrote:
I need to determine how much money a solar array
will save one of my customers over the next thirty years.

=FV(5%,30,-0.17*21128,0)

You can check this by changing 30 to 3 and computing the following
3-year
formula:

=21128*(0.17 + 0.17*(1+5%) + 0.17*(1+5%)^2)


----- original message -----

"Kyle P." wrote:
Hello,
I need to determine how much money a solar array will save one of
my
customers over the next thirty years.

I'd like to know the formula to calculate this.

Inputing: 17 Cents per kWh.
21,128 kWh's per year
a 5% increase in the cost of electricity per year.
(17cents
per kWh increasing by 5% every year).
over 30 years.

Help Please! Thanks.

.