Calculate Payback Period for Solar and Corn Projects
Overview
This question evaluates financial analysis and unit-economics skills by requiring computation of simple payback periods for renewable energy projects, testing understanding of payback metrics, variable costs, revenue per unit, and comparative project economics.
Capital One
Jul 12, 2025, 6:59 PM
Data Scientist
Technical Screen
Analytics & Experimentation
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Renewable Projects: Payback Period Comparison
Context
You are comparing two energy projects using a simple payback metric (years until cumulative profit equals the upfront investment). Assume:
- Ignore discounting, taxes, depreciation, and fixed O&M; only variable costs matter.
- "Units" refer to energy units sold at the stated price.
- Solar has variable cost (VC) = $0 per unit.
- Corn bio-power has VC = $30 per unit and constant output.
- The corn plant's annual output level is not specified; compute its payback as a function of its annual units produced (Qc). If a specific Qc is provided (e.g., 150,000 units/year), plug it in.
Given
- Solar project: upfront 40/unit; VC = $0/unit.
- Corn bio-power project: upfront 40/unit; VC = $30/unit.
Tasks
(a) Compute the payback period for the solar project.
(b) Compute the payback period for the corn project (as a function of Qc, and also give a numeric example for Qc = 150,000 units/year).
(c) Based on payback, which project should be chosen and why? State any conditions on Qc that affect the decision.
Solution
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