Econo-Cool air conditioners cost $345 to purchase, result in electricity bills of $159 per year, and last for 5 years. Luxury Air models cost $545, result in electricity bills of $118 per year, and last for 8 years. The discount rate is 25%. 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?

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Econo-Cool air conditioners cost $345 to purchase, result in electricity bills of $159 per year, and last for 5 years. Luxury Air models cost $545, result in electricity bills of $118 per year, and last for 8 years. The discount rate is 25%.

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?

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?

 

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