A traditional-furnace costs $224 and consumes $155 per year in fuel over its 11 year lifetime....

A traditional-furnace costs $224 and consumes $155 per year in fuel over its 11 year lifetime. A condensing-furnace costs $440 and consumes $80 per year in fuel over its 11 year lifetime. If interest rates are12% per year, which is the better investment?

Expert Solution

The annual equivalent cost of traditional-furnace = 224(A/P, 12%, 11) + 155

= 224(0.1684) + 155

= 37.72 + 155

= $192.72

The annual equivalent cost of condensing -furnace = 440(A/P, 12%, 11) + 80

= 440(0.1684) + 80

= 74.10 + 80

= $154.10

Since the annual equivalent cost of condensing -furnace is lower than the traditional-furnace, therefore, investment in condensing -furnace is better investment.

Rahul Sunny answered 6 months ago

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