If the homeowner does nothing, she can invest her money in a 4.5%/year savings account. In making her determination, she believes that inflation will be 3%/year. (a) If she were to capitalize her costs for a 30-year life, what unit should she choose? (b) How sensitive is her decision to the inflation rate?
If the homeowner does nothing, she can invest her money in a 4.5%/year savings account. In making her determination, she believes that inflation will be 3%/year. (a) If she were to capitalize her costs for a 30-year life, what unit should she choose? (b) How sensitive is her decision to the inflation rate?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A homeowner is attempting to determine which of three point-of-use (POU) devices to
purchase to treat the cold water at the sink. Research revealed the following information:
Unit
POU Device #1
POU Device #2
POU Device #3
Capital
Cost ($)
1000
950
1010
O&M Cost
($/yr)
625
550
582
Life
Expectancy
(yr)
15
5
10
If the homeowner does nothing, she can invest her money in a 4.5%/year savings account.
In making her determination, she believes that inflation will be 3%/year.
(a) If she were to capitalize her costs for a 30-year life, what unit should she choose?
(b) How sensitive is her decision to the inflation rate?
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