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    Purchase Decision Based on Net Present Value: Air Conditioners

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    Net Present Value is a concept which confuses many students, mostly because they are unfamiliar with its application. You would actually be surprised how many potential decisions can benefit from considering the impact of NPV. For example, should you buy a car and get $2,000 cash or a 5 year no interest loan - which is really the better deal?

    Share a decision which you can now see would benefit from the use of NPV calculations and why (other than car purchasing). No research citations are required.

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    Solution Preview

    Net present value helps us analyze decisions based on time value of money and lets us choose the most profitable alternative.

    In my case I would consider the decision of purchase of a new air conditioner. When I went to the market I came across the price variance between different models. The ones that are more efficient cost more whereas those that are less efficient cost less. So, I have to decide if I should ...

    Solution Summary

    The response analyzes the tradeoff between two air conditioners based on purchase price and operating costs based on the present value concept.