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Consider the following situation --- your current clothes washer has broken and is now worthless. You are considering the purchase of a new clothes washer for a ten-year planning period. The clothes washer is used one (1) time/day for each day of the year (365 days). Also, use end of year convention – DISCOUNT all expenditures that occur in the first year.

Option 1:

Standard clothes washer that uses $0.25 in energy (gas and electricity) per use. Capital cost = $500.

Option 2:

High efficiency clothes washer that uses $0.10 in energy per use. Capital cost = $800.

a. If the interest rate is 8 percent determine the least cost option for satisfying the clothes-washing requirement. Calculate simple payback for the high efficiency clothes washer.

b. Next, consider replacement of a currently working clothes washer (i.e., your current washer is not broken) with the high efficiency model. Determine the least cost option for satisfying the clothes-washing requirement. Calculate simple payback for the high efficiency clothes washer.

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92839307

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