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Question 5.BB: A large lithium-ion phosphate battery pack for an industrial...

A large lithium-ion phosphate battery pack for an industrial application is expected to save $20,000 in annual energy expenses over its six-year life. For a three-year simple payback period, the permissible capital investment is $60,000. What is the internal rate of return on this $60,000 battery pack if it has a residual value of $10,000 at the end of six years? The MARR is 18% per year

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To determine the IRR, this equation needs to be solved for \acute{i}%:

0 = −$60,000 + $20,000(P/A, \acute{i}%, 6) + $10,000 (P/F, \acute{i}%,6)

From Goal Seek in Excel, the value of \acute{i}% is 26.14%. The battery pack is an acceptable investment because 26.14% > 18%.

Goal Seek Setup:
Cell A1 = 0.18 (initial guess)
Cell B1 = –60000 + PV(A1, 6, –20000) + 10000/(1+A1)∧ 6
Set Cell B1 = 0 by changing Cell A1.

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