Question

# Econo-Cool air conditioners cost $400 to purchase, result in electricity bills of$169 per year, and...

Econo-Cool air conditioners cost $400 to purchase, result in electricity bills of$169 per year, and last for 5 years. Luxury Air models cost $595, result in electricity bills of$138 per year, and last for 8 years. The discount rate is 25%.

a. What are the equivalent annual costs of the Econo-Cool models? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. What are the equivalent annual costs of the Luxury Air models? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

#### Homework Answers

Answer #1

Solution a:

 computation of PV of cash outflows and equivalent annual cost - Econo cool Model Particualrs Amount Period PV Factor Present Value Air conditioner cost $400.00 0 1$400.00 Electricity cost $169.00 1-5 2.689280$454.49 Total Present value of cash outflows $854.49 Annuity factor 2.689280 Equivalent annual cost$317.74

Solution b:

 computation of PV of cash outflows and equivalent annual cost - Luxury Air Model Model Particualrs Amount Period PV Factor Present Value Air conditioner cost $595.00 0 1$595.00 Electricity cost $138.00 1-5 3.328911$459.39 Total Present value of cash outflows $1,054.39 Annuity factor 3.328911 Equivalent annual cost$316.74
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