The seasonal energy efficiency ratio (SEER) is 13 for a new heating and air conditioning system that costs $4,400 to install. A higher SEER (14) system is available for $5,200. The more efficient system with a SEER of 14 will save 10,000,000 Btu per year in energy consumption. Assume the cost per million Btu is $10.00. If the warranty on either system is 10 years, is the extra $800 for the more efficient system justified? The inflation-free (real) interest rate is 2% per year. What assumptions did you make in your analysis?

Question

Want to see more full solutions like this?

Answer 1

Textbook Question

Chapter 8, Problem 1P

The seasonal energy efficiency ratio (SEER) is 13 for a new heating and air conditioning system that costs $4,400 to install. A higher SEER (14) system is available for $5,200. The more efficient system with a SEER of 14 will save 10,000,000 Btu per year in energy consumption. Assume the cost per million Btu is $10.00. If the warranty on either system is 10 years, is the extra $800 for the more efficient system justified? The inflation-free (real) interest rate is 2% per year. What assumptions did you make in your analysis?

Expert Solution & Answer

To determine

Calculate the internal rate o return.

Explanation of Solution

The assumption is that the cost of energy is remain the same for the analysis period of 10 years. Also it is assumes that the salvage value of the two system at end of the life time is zero.

Time period is denoted by n and the interest is denoted by i. The internal rate of return (i) between the two systems can be calculated as follows.

Additional spending=Saving Btu×Cost per Btu((1+i)n−1i(1+i)n)800=10,000,000×101,000,000((1+i)10−1i(1+i)10)

Substitute the value of ‘i’ as 4.3% by trial and error method in the above calculation. This makes the calculated value is equal to additional spending. Thus, it is verified that the IRR is 4.3%. Since the IRR is greater than the real interest rate. The additional spending is justified.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

Two firms are competing in a Cournot duopoly. Both firms have the same constant marginal cost. The market demand is linear. Suppose the constant marginal cost of firm 2 is increasing. Which of the following statements are correct? [There may be more than one correct statement.] The quantity of firm 1 and the quantity of firm 2 both go up. The quantity of firm 1 goes up and the quantity of firm 2 goes down. The market price goes down. The market price goes up. The quantity of firm 1 and the quantity of firm 2 go down. The quantity of firm 1 goes down and the quantity of firm 2 goes up. The market price stays the same.

evaluate the impact of government interventions, such as antitrust regulations, price controls, or subsidies, on various market structures. Select a specific industry and examine how these interventions have influenced competition, consumer welfare, and economic efficiency. Provide the pros and cons of government intervention.

Consider an economy that exhibits both population growth (L grows at rate n) and technological progress (A grows at rate a) described by the production function, Y = F(K, AL) = Ka (AL)¹-α Here K is capital and Y is output. (a) Show that this production function exhibits constant returns to scale. [2 marks] (b) What is the per-effective-worker production function, y = f(k), (where y = Y/AL k K/AL)? (Show your working.) [2 marks] (c) Find expressions for the steady-state capital-output ratio, capital stock per effective worker, and output per effective worker, as a function of the saving rate (s), the depreciation rate (8), the population growth rate (n), the rate of technological progress (a), and the coefficient a. (You may assume the condition that capital per effective worker evolves according to Ak = sf (k) - (a+n+8)k.) [5 marks] (d) Show that at the Golden Rule steady state the saving rate for this economy is equal to the parameter a. [6 marks]

Answer 2

Textbook Question

Chapter 8, Problem 1P

The seasonal energy efficiency ratio (SEER) is 13 for a new heating and air conditioning system that costs $4,400 to install. A higher SEER (14) system is available for $5,200. The more efficient system with a SEER of 14 will save 10,000,000 Btu per year in energy consumption. Assume the cost per million Btu is $10.00. If the warranty on either system is 10 years, is the extra $800 for the more efficient system justified? The inflation-free (real) interest rate is 2% per year. What assumptions did you make in your analysis?

Expert Solution & Answer

To determine

Calculate the internal rate o return.

Explanation of Solution

The assumption is that the cost of energy is remain the same for the analysis period of 10 years. Also it is assumes that the salvage value of the two system at end of the life time is zero.

Time period is denoted by n and the interest is denoted by i. The internal rate of return (i) between the two systems can be calculated as follows.

Additional spending=Saving Btu×Cost per Btu((1+i)n−1i(1+i)n)800=10,000,000×101,000,000((1+i)10−1i(1+i)10)

Substitute the value of ‘i’ as 4.3% by trial and error method in the above calculation. This makes the calculated value is equal to additional spending. Thus, it is verified that the IRR is 4.3%. Since the IRR is greater than the real interest rate. The additional spending is justified.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Textbook Question

Chapter 8, Problem 1P

The seasonal energy efficiency ratio (SEER) is 13 for a new heating and air conditioning system that costs $4,400 to install. A higher SEER (14) system is available for $5,200. The more efficient system with a SEER of 14 will save 10,000,000 Btu per year in energy consumption. Assume the cost per million Btu is $10.00. If the warranty on either system is 10 years, is the extra $800 for the more efficient system justified? The inflation-free (real) interest rate is 2% per year. What assumptions did you make in your analysis?

Expert Solution & Answer

To determine

Calculate the internal rate o return.

Explanation of Solution

The assumption is that the cost of energy is remain the same for the analysis period of 10 years. Also it is assumes that the salvage value of the two system at end of the life time is zero.

Time period is denoted by n and the interest is denoted by i. The internal rate of return (i) between the two systems can be calculated as follows.

Additional spending=Saving Btu×Cost per Btu((1+i)n−1i(1+i)n)800=10,000,000×101,000,000((1+i)10−1i(1+i)10)

Substitute the value of ‘i’ as 4.3% by trial and error method in the above calculation. This makes the calculated value is equal to additional spending. Thus, it is verified that the IRR is 4.3%. Since the IRR is greater than the real interest rate. The additional spending is justified.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Textbook Question

Chapter 8, Problem 1P

The seasonal energy efficiency ratio (SEER) is 13 for a new heating and air conditioning system that costs $4,400 to install. A higher SEER (14) system is available for $5,200. The more efficient system with a SEER of 14 will save 10,000,000 Btu per year in energy consumption. Assume the cost per million Btu is $10.00. If the warranty on either system is 10 years, is the extra $800 for the more efficient system justified? The inflation-free (real) interest rate is 2% per year. What assumptions did you make in your analysis?

Expert Solution & Answer

To determine

Calculate the internal rate o return.

Explanation of Solution

The assumption is that the cost of energy is remain the same for the analysis period of 10 years. Also it is assumes that the salvage value of the two system at end of the life time is zero.

Time period is denoted by n and the interest is denoted by i. The internal rate of return (i) between the two systems can be calculated as follows.

Additional spending=Saving Btu×Cost per Btu((1+i)n−1i(1+i)n)800=10,000,000×101,000,000((1+i)10−1i(1+i)10)

Substitute the value of ‘i’ as 4.3% by trial and error method in the above calculation. This makes the calculated value is equal to additional spending. Thus, it is verified that the IRR is 4.3%. Since the IRR is greater than the real interest rate. The additional spending is justified.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

Expert Solution & Answer

To determine

Calculate the internal rate o return.

Explanation of Solution

The assumption is that the cost of energy is remain the same for the analysis period of 10 years. Also it is assumes that the salvage value of the two system at end of the life time is zero.

Time period is denoted by n and the interest is denoted by i. The internal rate of return (i) between the two systems can be calculated as follows.

Additional spending=Saving Btu×Cost per Btu((1+i)n−1i(1+i)n)800=10,000,000×101,000,000((1+i)10−1i(1+i)10)

Substitute the value of ‘i’ as 4.3% by trial and error method in the above calculation. This makes the calculated value is equal to additional spending. Thus, it is verified that the IRR is 4.3%. Since the IRR is greater than the real interest rate. The additional spending is justified.

Answer 8

Expert Solution & Answer

To determine

Calculate the internal rate o return.

Explanation of Solution

The assumption is that the cost of energy is remain the same for the analysis period of 10 years. Also it is assumes that the salvage value of the two system at end of the life time is zero.

Time period is denoted by n and the interest is denoted by i. The internal rate of return (i) between the two systems can be calculated as follows.

Additional spending=Saving Btu×Cost per Btu((1+i)n−1i(1+i)n)800=10,000,000×101,000,000((1+i)10−1i(1+i)10)

Substitute the value of ‘i’ as 4.3% by trial and error method in the above calculation. This makes the calculated value is equal to additional spending. Thus, it is verified that the IRR is 4.3%. Since the IRR is greater than the real interest rate. The additional spending is justified.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

To determine

Calculate the internal rate o return.

Answer 12

Explanation of Solution

The assumption is that the cost of energy is remain the same for the analysis period of 10 years. Also it is assumes that the salvage value of the two system at end of the life time is zero.

Time period is denoted by n and the interest is denoted by i. The internal rate of return (i) between the two systems can be calculated as follows.

Additional spending=Saving Btu×Cost per Btu((1+i)n−1i(1+i)n)800=10,000,000×101,000,000((1+i)10−1i(1+i)10)

Substitute the value of ‘i’ as 4.3% by trial and error method in the above calculation. This makes the calculated value is equal to additional spending. Thus, it is verified that the IRR is 4.3%. Since the IRR is greater than the real interest rate. The additional spending is justified.

Answer 13

Ch. 8 - The seasonal energy efficiency ratio (SEER) is 13...Ch. 8 - Prob. 2P Ch. 8 - Prob. 3P Ch. 8 - Prob. 4P Ch. 8 - Prob. 5P Ch. 8 - Prob. 6P Ch. 8 - Prob. 7P Ch. 8 - Prob. 8P Ch. 8 - Prob. 9P Ch. 8 - Prob. 10P

Explanation of Solution

Want to see more full solutions like this?

Chapter 8 Solutions

Additional Business Textbook Solutions