Equivalent Annual Cost
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? Equivalent Annual Cost. Econo-Cool air conditioners cost $300 to purchase, result in electricity bills of $150 per year, and last for 5 years. Luxury Air models cost $500, result in electricity bills of $100 per year, and last for 8 years. The discount rate is 21 percent.
1. What are the equivalent annual costs of the Econo-Cool and Luxury Air models?
2. Which model is more cost-effective?
3. Now you remember that the inflation rate is expected to be 10 percent per year for the foreseeable future. Redo parts (a) and (b).
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Solution Summary
The solution explains how to calculate the equivalent annual cost and decide which model is more cost effective
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1. What are the equivalent annual costs of the Econo-Cool and Luxury Air models?
The equivalent annual cost is the cost per year to operate the model. The costs of operating the models is the annual electricity bill and the cost of the air conditioner. The annual electicity bill is an annutl cost itself. The initial cost is paid at the start and that we should convert to equivalent annual cost (EAC). The EAC is an ...
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