Suppose you are moving into a new apartment that you expect to rent for five years. The owner of the apartment offers to provide you with a used refrigerator for free and promises to maintain and repair the refrigerator during the next five years. You also have the option of buying a new energy- efficient refrigerator (with a five-year free maintenance agreement) for $600. The new refrigerator will reduce your electric bill by $150 per year and will have a market value of $50 after five years. The interest rate is 12%. Use the preceding information to calculate the present value of the cost saving and resale value of the refrigerator. Then decide if the investment is worthwhile, given the present value of the cost of the refrigerator. At this interest rate, the present value of cost saving and resale value of the new refrigerator is about present value of the cost of the refrigerator. Thus, you should choose the refrigerator which is than the
Suppose you are moving into a new apartment that you expect to rent for five years. The owner of the apartment offers to provide you with a used refrigerator for free and promises to maintain and repair the refrigerator during the next five years. You also have the option of buying a new energy- efficient refrigerator (with a five-year free maintenance agreement) for $600. The new refrigerator will reduce your electric bill by $150 per year and will have a market value of $50 after five years. The interest rate is 12%. Use the preceding information to calculate the present value of the cost saving and resale value of the refrigerator. Then decide if the investment is worthwhile, given the present value of the cost of the refrigerator. At this interest rate, the present value of cost saving and resale value of the new refrigerator is about present value of the cost of the refrigerator. Thus, you should choose the refrigerator which is than the
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter27: Investment, The Capital Market, And The Wealth Of Nations
Section: Chapter Questions
Problem 13CQ
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