The Department of Energy is proposing new rules mandating either a 20% increase or a 35% increase in clothes washer efficiency in 3 years. The 20% increase is expected to add $100 to the current price of a washer, while the 35% increase will add $240 to the price. If the cost for energy is $80 per year with the 20% increase in efficiency and $65 per year with the 35% increase, which one of the two proposed standards is more economical on the basis of a future worth analysis at an interest rate of 10% per year? Assume a 15-year life for all washer models.
The Department of Energy is proposing new rules mandating either a 20% increase or a 35% increase in clothes washer efficiency in 3 years. The 20% increase is expected to add $100 to the current price of a washer, while the 35% increase will add $240 to the price. If the cost for energy is $80 per year with the 20% increase in efficiency and $65 per year with the 35% increase, which one of the two proposed standards is more economical on the basis of a future worth analysis at an interest rate of 10% per year? Assume a 15-year life for all washer models.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
The Department of Energy is proposing new rules
mandating either a 20% increase or a 35% increase
in clothes washer efficiency in 3 years. The 20%
increase is expected to add $100 to the current
price of a washer, while the 35% increase will add
$240 to the price. If the cost for energy is $80 per
year with the 20% increase in efficiency and $65
per year with the 35% increase, which one of the two proposed standards is more economical on the
basis of a future worth analysis at an interest rate
of 10% per year? Assume a 15-year life for all
washer models.
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