You are in the market for a new refrigerator for your company’s lounge, and you have...

You are in the market for a new refrigerator for your company’s lounge, and you have narrowed the search down to two models. The energy-efficient model sells for $6,000 and will save you $200 at the end of each of the next five years in electricity costs. The standard model has features similar to the energy-efficient model but provides no future saving in electricity costs. It is prices at $5,000. Assuming your opportunity cost of funds, i..e. the interest rate, is 6 percent, which refrigerator should you purchase? Provide a detailed and concrete reason for your answer.

Solutions

Expert Solution

The question has been answered using the concept of Net Present Value.

In crux, the same amount of money if offered today will always be more valuable than the same sum offered in the future. Therefore, although the energy efficient refrigerator will save you $200 at the end of each year for 5 years, but it is also $1000 more expensive than the standard refrigerator.

Therefore, $1000 today will always be more valuable than $1000 dollars in the future ($200 x 5).

Detailed calculations are attached.

Page 1:

Page 2:

Page 3:

Page 4:

Rahul Sunny answered 5 months ago

Next > < Previous

Related Solutions

a. You are in the market for a new refrigerator for your company’s lounge, and you...

a. You are in the market for a new refrigerator for your company’s lounge, and you have narrowed the search down to two models. The energy-efficient model sells for ¢1,700 and will save you ¢45 in electricity costs at the end of each of the next five years. The standard model has features similar to the energy-efficient model but provides no future saving in electricity costs. It is priced at only ¢1,500. Assuming your opportunity cost of funds is 6...

You have opened a new motel with an attached restaurant and cocktail lounge. What are the...

You have opened a new motel with an attached restaurant and cocktail lounge. What are the risks that your business faces? What insurance coverages should you consider essential in your insurance program?

Let's assume you are having a party and have stocked your refrigerator with beverages. You have...

Let's assume you are having a party and have stocked your refrigerator with beverages. You have 12 bottles of Coors beer, 24 bottles of Rainier beer, 24 bottles of Schlitz light beer, 12 bottles of Hamms beer, 2 bottles of Heineken dark beer and 6 bottles of Pepsi soda. You go to the refrigerator to get beverages for your friends. In answering the following question assume you are randomly sampling without replacement. What is the probability your first three bottles...

3-2 You have opened a new motel with an attached restaurant and cocktail lounge. What are...

3-2 You have opened a new motel with an attached restaurant and cocktail lounge. What are the risks -that -your business faces? What insurance coverages should you consider essential in your insurance program?

4-2 You have opened a new motel with an attached restaurant and cocktail lounge. What are...

4-2 You have opened a new motel with an attached restaurant and cocktail lounge. What are the risks that your business faces? What insurance coverages should you consider essential in your insurance program?

You place your lunch leftovers in the refrigerator. Suppose the refrigerator needs to remove 1.5990E+4 J...

You place your lunch leftovers in the refrigerator. Suppose the refrigerator needs to remove 1.5990E+4 J of thermal energy from your lunch to cool it to the temperature of the inside of the refrigerator. In the meantime, this means the refrigerator produces 2.1449E+4 J of thermal energy that it expels into the kitchen as a result. What is the total work done by the compressor motor in the refrigerator? (Ignore any thermal loses due to friction in the motor.) Tries...

1. As a junior member of your company’s committee to explore new markets, you have received...

1. As a junior member of your company’s committee to explore new markets, you have received a memo from the chairperson telling you to be prepared at the next meeting to discuss key questions that need to be addressed if the company decides to look further into the possibility of marketing to the BOP segment. The ultimate goal of this meeting will be to establish a set of general guidelines to use in developing a market strategy for any one...

Samsung Family Hub refrigerator Discuss the logistics of the new refrigerator from the perspective of the...

Samsung Family Hub refrigerator Discuss the logistics of the new refrigerator from the perspective of the retailer. What retail price would you set for the new refrigerator? How would you come up with this price?

The Vandal Lounge, (slogan; “We trashed the place so you wouldn’t have to”) is trying to...

The Vandal Lounge, (slogan; “We trashed the place so you wouldn’t have to”) is trying to decide drink prices. After rejecting a shrewd suggestion from the head bartender that they charge more for each succeeding drink on the assumption that the impaired patrons won’t have enough sense to understand the novel pricing scheme, you head to the back with a pot of coffee to decide the price of Vandal beer. You estimate that next year you will have sales of...

consider the size of your market, do you have opportunities to grow? If you have a...

consider the size of your market, do you have opportunities to grow? If you have a small niche market size, is it sustainable? Are you considering economic fluctuation?

Subjects