Homework SourseAir conditioners cost 300 to purchase result in electricity
Air conditioners cost $300 to purchase, result in electricity bills of $150 per year, and last for 5 years. The discount rate is 20 percent. Should you replace your current air conditioner which costs $270 per year to run?
A: Do not replace - the equivalent annual cost of the new AC is $350
B: Replace - the equivalent annual cost of the new AC is $210
C: Do not replace - the equivalent annual cost of the new AC is $330
D: Replace - the equivalent annual cost of the new AC is $150
E: Replace - the equivalent annual cost of the new AC is $250
Solution
PV = 748.59, FV = 0, N = 5, rate = 20%
use PNT function in Excel
equivalent annual cost for new ac = 250
E: Replace - the equivalent annual cost of the new AC is $250
| Discount rate | 20.0000% | ||
| Cash flows | Year | Discounted CF= cash flows/(1+rate)^year | Cumulative cash flow |
| 300.00 | 0 | 300.00 | 300.00 |
| 150.000 | 1 | 125.00 | 425.00 |
| 150.000 | 2 | 104.17 | 529.17 |
| 150.000 | 3 | 86.81 | 615.97 |
| 150.000 | 4 | 72.34 | 688.31 |
| 150.000 | 5 | 60.28 | 748.59 |
