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JoshuaFox comments on Open Thread, September 30 - October 6, 2013 - Less Wrong Discussion
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Yes, good point. It took me a while to figure out by myself the best way I should be calculating my rate of return on my variable-return investments, before discovering this in Excel.
But in this case, the panels produce (hopefully) a pretty constant annual amount of electricity, and the price I get is a fixed amount, so it seems that calculating IRR is easy.
As long as we are the topic, maybe the smart folks here can explain, mathematically, why the summation formula for IRR does not admit a closed-form solution? I asked on Quant StackExchange and didn't get much of an answer.
Your calculation is presumably for a fairly long term. In the long term prices don't remain fixed, things break down, need maintenance, etc. For example, hail might damage some of your panels. Or your roof might start to leak and the presence of the panels will substantially add to the cost of repairing it.
Excellent. I had an overly-simplistic mental model in which the panels would last until they fail.
But yes, unexpected costs that are nonetheless below full price of the panels are a real possibility.