A small heat pump now costs $2,800 to purchase and install. It has a projected useful life of 12 years and will incur annual maintenance costs of $125 per year in real (year-zero) dollars over the useful life. These costs are projected to increase at 6% per year, which is the expected general inflation rate. The annual cost of electricity for the heat pump is $650 in year-zero dollars. Electricity prices are projected to increase at an annual rate of 8%. The firm's MARR, which includes an allowance for general price inflation, is 18% per year (im). No market value is expected from the heat pump at the end of the 12 years of service life. Click the icon to view the interest and annuity table for discrete compounding when i = 18% per year. a. What is the PW of owning and operating the heat pump? The PW is $. (Round to the nearest dollar.) b. (i) What is the AW, expressed in actual dollars, of owning and operating the heat pump? The AW is $. (Round to the nearest dollar.) (ii) What is the AW in real dollars of owning and operating the heat pump? The AW is $ (Round to the nearest dollar.)

A small heat pump now costs $2,800 to purchase and install. It has a projected useful life of 12 years and will incur annual maintenance costs of $125 per year in real (year-zero) dollars over the useful life. These costs are projected to increase at 6% per year, which is the expected general inflation rate. The annual cost of electricity for the heat pump is $650 in year-zero dollars. Electricity prices are projected to increase at an annual rate of 8%. The firm's MARR, which includes an allowance for general price inflation, is 18% per year (im). No market value is expected from the heat pump at the end of the 12 years of service life. Click the icon to view the interest and annuity table for discrete compounding when i = 18% per year. a. What is the PW of owning and operating the heat pump? The PW is $. (Round to the nearest dollar.) b. (i) What is the AW, expressed in actual dollars, of owning and operating the heat pump? The AW is $. (Round to the nearest dollar.) (ii) What is the AW in real dollars of owning and operating the heat pump? The AW is $ (Round to the nearest dollar.)

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter2: The One Lesson Of Business

Section: Chapter Questions

Problem 2.6IP

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