Question

Econo-Cool air conditioners cost $330 to purchase, result in electricity bills of $156 per year, and last for 5 years. Luxury Air models cost $530, result in electricity bills of $112 per year, and last for 8 years. The discount rate is 20%. a. What is the equivalent annual cost of the Econo-Cool model? (Do not round intermediate calculations. Round your answers to 2 decimal places.) b. What is the equivalent annual cost of the Luxury Air model? (Do not round intermediate calculations. Round your answers to 2 decimal places.) c. Which model is more cost-effective? Econo-Cool Luxury Air d-1. Now you remember that the inflation rate is expected to be 10% per year for the foreseeable future. What is the equivalent annual cost of the Econo-Cool and Luxury Air model? (Do not round intermediate calculations. Round your answers to 2 decimal places.) d-2. Which model is more cost-effective? Econo-Cool Luxury Air

Answer #1

We have to use present value method to find out which of the above ACs are cost effective.

Here as per year electricity bill is same so we can use annuity as discounting for finding out the present value.

So present value of ECO Cool Ac's electricity bill will be $156 x PVIFA ( 20%,5) = 156 x 2.991 = $466.60

so total presnt cost will be = 330 + 466.60 = $796.6

anuual cost will be = 796.6/5 = 159.32

Now for Luxuary one the cost of electiricty will be = $ 112 x PVIFA (20%,8) = 112 X 3.837 = $429.744

TOTAL cost of luxuary one will be = 429.74 + 530 = $959.74

annual luxuary one cost will be $959.74/8 = $119.97

So luxuary one is better .

For inflation one you can increase the electiricity charges by 10% every year. but here i am not able to understand that from year one i have to increase or form 2nd year keeping 1st as a base .

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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...

Econo-cool air conditioners cost $300 to purchase, result in
electricity bills of $150 per year, and last for 5 years. Luxury
Air models cost $500, result in electricity bills of $100 per year,
and last for 8 years. The discount rate is 21 percent.
a. What are the equivalent annual costs of the Econo-cool and
Luxury Air models? Which model is more cost effective?
b. Now you remember that the inflation rate is expected to be 10
percent per year...

Luxury Air models cost $510, result in electricity bills of $104
per year, and last for 8 years. The discount rate is 22%.
a) Now you remember that the inflation rate is expected to be
10% per year for the foreseeable future. What are the equivalent
annual costs of Luxury Air models?

Way Cool produces two different models of air conditioners. The
company produces the mechanical systems in their components
department. The mechanical systems are combined with the housing
assembly in its finishing department. The activities, costs, and
drivers associated with these two manufacturing processes and the
production support process follow. (Loss amounts should be
indicated with a minus sign. Round your intermediate calculations
and round "Cost per unit and OH rate" answers to 2 decimal
places.)
Process
Activity
Overhead Cost
Driver...

Way Cool produces two different models of air conditioners. The
company produces the mechanical systems in their components
department. The mechanical systems are combined with the housing
assembly in its finishing department. The activities, costs, and
drivers associated with these two manufacturing processes and the
production support process follow. (Loss amounts should be
indicated with a minus sign. Round your intermediate calculations
and round "Cost per unit and OH rate" answers to 2 decimal
places.)
Process
Activity
Overhead Cost...

Way Cool produces two different models of air conditioners. The
company produces the mechanical systems in their components
department. The mechanical systems are combined with the housing
assembly in its finishing department. The activities, costs, and
drivers associated with these two manufacturing processes and the
production support process follow.
Process
Activity
Overhead Cost
Driver
Quantity
Components
Changeover
$
448,950
Number of batches
730
Machining
399,784
Machine hours
8,470
Setups
288,800
Number of setups
160
$
1,137,534
Finishing
Welding
$
233,220...

Way Cool produces two different models of air conditioners. The
company produces the mechanical systems in their components
department. The mechanical systems are combined with the housing
assembly in its finishing department. The activities, costs, and
drivers associated with these two manufacturing processes and the
production support process follow. (Loss amounts should be
indicated with a minus sign. Round your intermediate calculations
and round "Cost per unit and OH rate" answers to 2 decimal
places.)
Process
Activity
Overhead Cost
Driver...

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