ACCT-212 Comprehensive Problem 3
Evaluating a Decision to Install Renewable Energy
You are an accountant at Umbrella Corporation, which manufactures circuit boards for automobile
manufacturing companies. As a company, they expect a rate of return of 10% on new projects.
Senior leadership is committed to green energy to reduce greenhouse emissions. They named the
project Resident Good. They are evaluating two alternatives-solar and wind. Management understands
this will not lead to cost savings or positive cash inflows. Solar panels would provide enough energy to
make Umbrella about 70% green, and Wind would make Umbrella 100% green.
The total cost to install the solar panels is $2,000,000. $750,000 initial investment with the remaining
$1,250,000 in year 1. They are expected to have a 15-year life. Annual maintenance costs for the solar
panels are $50,000, which starts in year 1. Umbrella will also receive a $100,000 grant at the project's
initiation. As a result of installing the solar panels, Umbrella will save $7,000 in year 1 on its electric bill
and $18,000 each subsequent year. In addition, Umbrella would receive $1,000 annually by selling
excess energy back into the electrical grid starting in year 2.
The cost to install wind turbines is $3,000,000. $1,000,000 initial investment, $1,800,000 in year 1 and
$200,000 in year 2. They are also expected to have a 15-year life. Annual maintenance costs are
$60,000, and they would receive a $100,000 grant upon initiation of the project. Umbrella will save
$40,000 in year 1 on its electric bill and $80,000 each year thereafter on its electric bill and would
receive $15,000 annually for selling excess energy generated back into the electric grid starting in year 2.
Your tasks:
1. Use an Excel worksheet to calculate each alternative's Net Present Value
2. What else should Umbrella consider besides the calculations for these projects? (1-2 Pages
double-spaced)
a. Impact of renewable energy on each element of ESG (Environmental, Social,
Governance). I have included a resource in the module to get you started -PRI ESG. Cite
your sources used.
b. How do these projects support the company goals?
c. Describe how you measure the progress of the company's renewable entry goals in the
Balanced Scorecard
d. What qualitative factors should be considered? For example, appearance and impact on
wildlife. Cite any sources used.
3. Write a one-page memo to Umbrella leadership with your recommendations and why.