Problem:
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 (1) and (2).