Eddie is purchasing a fridge and must choose between fridge A and B. Fridge A is 500 W, has an upfront cost of $1,200, a lifetime of 10 years, an efficiency of 52%, and a resale value of $290. Fridge B is 300 W, has an upfront cost of $2,500, a lifetime of 16 years, an efficiency of 70%, and a resale value of $510. Electricity costs $0.10 per kWh. Inflation is 2.0% per year. Based on a calculation of net present value and the difference in NPV between the fridges, which fridge should you purchase? If the inflation is now 12% instead, what would be the NPV of each fridge?
Eddie is purchasing a fridge and must choose between fridge A and B. Fridge A is 500 W, has an upfront cost of $1,200, a lifetime of 10 years, an efficiency of 52%, and a resale value of $290. Fridge B is 300 W, has an upfront cost of $2,500, a lifetime of 16 years, an efficiency of 70%, and a resale value of $510. Electricity costs $0.10 per kWh. Inflation is 2.0% per year. Based on a calculation of net present value and the difference in NPV between the fridges, which fridge should you purchase? If the inflation is now 12% instead, what would be the NPV of each fridge?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Eddie is purchasing a fridge and must choose between fridge A and B. Fridge A is 500 W, has an upfront cost of $1,200, a lifetime of 10 years, an efficiency of 52%, and a resale value of $290. Fridge B is 300 W, has an upfront cost of $2,500, a lifetime of 16 years, an efficiency of 70%, and a resale value of $510. Electricity costs $0.10 per kWh. Inflation is 2.0% per year. Based on a calculation of
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