Question
In: Accounting
You bought a house two years ago and the hot water heater just died. You are...
You bought a house two years ago and the hot water heater just died. You are considering replacing it with an updated version of the same model, which would cost you $200 including installation. Your family consumes about 110 gal of hot water daily, which costs you $230 in utilities each year. The new tank comes with a 20-year guarantee, and at the end of that time, you assume it would be discarded and a new version installed, so zero salvage cost.
Alternatively, you have been researching solar powered hot water systems and found a system that would meet your family’s requirements. It includes two solar panels and a storage tank with an auxiliary heating coil for those cloudy days. Total cost for this new system is $1250 including installation. To power the backup system is estimated to cost $60/year in utilities, and every fourth year, starting in year 4, $185 of maintenance will be required. At the 20-year point, you assume technology would have improved so this system would have zero value, and a new system would be installed.
Assuming a 7% discount rate, which system would be more economical over the 20-year life? When would the two systems be equal in cost?
Please show in excel
Solutions
Expert Solution
| (a) | Solar powered hot water system is more economical because it present value is less than the other. | ||||||||
| (b) | At a cost of $ 1,529 ( 1,250 + 279 ) of solar powered hot water, two systems woule be equal in cost. | ||||||||
| Working:- | |||||||||
| Updated hot water heater | Solar Powered hot water |
| Year | Outflow | PV Factor@7% | Present Value | Year | Outflow | PV Factor@7% | Present Value | |||
| 0 | -200 | 1 | -200 | 0 | -1,250 | 1 | -1,250 | |||
| 1 | -230 | 0.93458 | -215 | 1 | -60 | 0.93458 | -56 | |||
| 2 | -230 | 0.87344 | -201 | 2 | -60 | 0.87344 | -52 | |||
| 3 | -230 | 0.81630 | -188 | 3 | -60 | 0.81630 | -49 | |||
| 4 | -230 | 0.76290 | -175 | 4 Beginning* | -185 | 0.81630 | -151 | |||
| 5 | -230 | 0.71299 | -164 | 4 | -60 | 0.76290 | -46 | |||
| 6 | -230 | 0.66634 | -153 | 5 | -60 | 0.71299 | -43 | |||
| 7 | -230 | 0.62275 | -143 | 6 | -60 | 0.66634 | -40 | |||
| 8 | -230 | 0.58201 | -134 | 7 | -60 | 0.62275 | -37 | |||
| 9 | -230 | 0.54393 | -125 | 8 Beginning | -185 | 0.62275 | -115 | |||
| 10 | -230 | 0.50835 | -117 | 8 | -60 | 0.58201 | -35 | |||
| 11 | -230 | 0.47509 | -109 | 9 | -60 | 0.54393 | -33 | |||
| 12 | -230 | 0.44401 | -102 | 10 | -60 | 0.50835 | -31 | |||
| 13 | -230 | 0.41496 | -95 | 11 | -60 | 0.47509 | -29 | |||
| 14 | -230 | 0.38782 | -89 | 12 Beginning | -185 | 0.47509 | -88 | |||
| 15 | -230 | 0.36245 | -83 | 12 | -60 | 0.44401 | -27 | |||
| 16 | -230 | 0.33873 | -78 | 13 | -60 | 0.41496 | -25 | |||
| 17 | -230 | 0.31657 | -73 | 14 | -60 | 0.38782 | -23 | |||
| 18 | -230 | 0.29586 | -68 | 15 | -60 | 0.36245 | -22 | |||
| 19 | -230 | 0.27651 | -64 | 16 Beginning | -185 | 0.36245 | -67 | |||
| 20 | -230 | 0.25842 | -59 | 16 | -60 | 0.33873 | -20 | |||
| Total | -4,800 | -2,637 | 17 | -60 | 0.31657 | -19 | ||||
| 18 | -60 | 0.29586 |
&nbs
 ekkarill92 answered 2 years agoRelated SolutionsSuppose you have an electric hot water heater for your house which is an aluminum cylinder...Suppose you have an electric hot water heater for your house
which is an aluminum cylinder which has a 0.56 m radius and is 2 m
high. The walls are 1.0 cm thick. The thermal conductivity of
Aluminum is 217 W/(m K). Assume that the temperature of the hot
water inside the hot water heater is kept at a constant 90 C, and
the external temperature is 27 C.
Part A:
What is the surface area of the cylinder?
Part...
You bought your house five years ago and you believe you will be in the house...You bought your house five years ago and you believe you will be
in the house only about five more years before it gets too small
for your family. Your original home value when you bought it was
$500,000, you paid 10 percent down, and you financed closing costs
equal to 3 percent of the mortgage amount. The mortgage was a
25-year fixed- rate mortgage with a 5 percent annual interest rate.
Rates on 30-year mortgages are now at 3...
1. You bought your house 5 years ago, and your original home value when you bought...1. You bought your house 5 years ago,
and your original home value when you bought it was $450,000, you
paid 20% down and you financed closing costs equal to 4% of the
mortgage amount. The mortgage was a 30-year fixed rate mortgage
with a 6.5% annual interest rate. Rates on 30-year mortgages are
now at 5% if you pay 2 points upfront. Your refinancing costs will
be 2% of the new mortgage amount (excluding points). You won't
finance the...
Three years ago, you bought a house. You took out a $350,000.00 mortgage at 4.75% for...Three years ago, you bought a house. You took out a $350,000.00
mortgage at 4.75% for 30 years. Now that interest rates have fallen
(beginning of year 4 of your current mortgage), you are considering
refinancing your existing loan with a new 30 year loan. Your new
loan must pay off the remaining balance of your old loan plus pay
for all of the fees, associated with the new loan. In addition to
all of the standard fees, you choose...
You bought a house 8 years ago with a $250,000 mortgage. It was a 15 year loan withYou bought a house 8 years ago with a $250,000 mortgage. It was a 15 year loan with monthly payments which will pay off the loan when you make the last payment. The interest rate was 6%. What are your monthly payment and your current loan balance? How much interest will you pay in the upcoming year?
A few years ago, you got married and bought a house with an adjustable rate mortgage...A few years ago, you got married and bought a house with an
adjustable rate mortgage with the
following terms:
Loan: $240,000
Term: 20 years
Initial Rate: 4%
Margin: 2% over the Index Rate
Lifetime Max: 4.5%
The index rate was 2% in year 1, 1.5% in year 2, 4% in year 3,
1% in year 4, and 1% in year 5.
a) What is your loan balance at year 5? (5pts)
b) What is the effective interest rate is...
A few years ago, you got married and bought a house with an adjustable rate mortgage...A few years ago, you got married and bought a house with an
adjustable rate mortgage with the following terms: Loan: $240,000
Term: 20 years Initial Rate: 4% Margin: 2% over the Index Rate
Lifetime Max: 4.5% The index rate was 2% in year 1, 1.5% in year 2,
4% in year 3, 1% in year 4, and 1% in year 5. a) What is your loan
balance at year 5? (5pts) b) What is the effective interest rate is...
A few years ago, you got married and bought a house with an adjustable rate mortgage...
A few years ago, you got married and bought a house with an
adjustable rate mortgage with the following terms:
Loan: $240,000
Term: 20
years
Initial
Rate: 4%
Margin: 2%
over the Index Rate
Lifetime
Max: 4.5%
The index rate was 2% in year 1, 1.5%
in year 2, 4% in year 3, 1% in year 4, and 1% in year 5.
What is your loan balance at year 5?
What is the effective interest rate is paid off after year
5?
you just bought a house and have a $188,000 mortgage. the mortgage is for 15 years...you just bought a house and have a $188,000 mortgage. the
mortgage is for 15 years and has a nominal rate of 4.25%.on the
24th payment what will be the amount going to principal?
Jingfei bought a house 6 years ago for $200,000. Her down payment on the house was...Jingfei bought a house 6 years ago for $200,000. Her down
payment on the house was the minimum required 10% at that time she
financed the remainder with a 30-year fixed rate mortgage. The
annual interest rate was 8% and she was required to make monthly
payments, and she has just made her 72th payment. A new bank has
offered to refinance the remaining balance on Jingfei's loan and
she will have to pay $1,320 per month for the next...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
ADVERTISEMENT
|