Question

Econo-Cool air conditioners cost $330 to purchase, result in electricity bills of $156 per year, and...

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

Homework Answers

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 .

please rate the answer and give feedback

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
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...
Econo-cool air conditioners cost $300 to purchase, result in electricity bills of $150 per year, and...
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...
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?
Air conditioning for a college dormitory will cost $3.5 million to install and $100,000 per year...
Air conditioning for a college dormitory will cost $3.5 million to install and $100,000 per year to operate. The system should last 19 years. The real cost of capital is 5%, and the college pays no taxes. What is the equivalent annual cost? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Equivalent annual cost: $ ____ Can this be solved on a financial calculator?
Way Cool produces two different models of air conditioners. The company produces the mechanical systems in...
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...
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...
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...
A new furnace for your small factory will cost $47,000 and a year to install, will...
A new furnace for your small factory will cost $47,000 and a year to install, will require ongoing maintenance expenditures of $1,500 a year. But it is far more fuel-efficient than your old furnace and will reduce your consumption of heating oil by 4,400 gallons per year. Heating oil this year will cost $2 a gallon; the price per gallon is expected to increase by $0.50 a year for the next 3 years and then to stabilize for the foreseeable...
A new furnace for your small factory will cost $39,000 and a year to install, will...
A new furnace for your small factory will cost $39,000 and a year to install, will require ongoing maintenance expenditures of $1,100 a year. But it is far more fuel-efficient than your old furnace and will reduce your consumption of heating oil by 3,600 gallons per year. Heating oil this year will cost $2 a gallon; the price per gallon is expected to increase by $0.50 a year for the next 3 years and then to stabilize for the foreseeable...
A new furnace for your small factory will cost $38,000 and a year to install, will...
A new furnace for your small factory will cost $38,000 and a year to install, will require ongoing maintenance expenditures of $1,200 a year. But it is far more fuel-efficient than your old furnace and will reduce your consumption of heating oil by 3,500 gallons per year. Heating oil this year will cost $2 a gallon; the price per gallon is expected to increase by $0.50 a year for the next 3 years and then to stabilize for the foreseeable...