Question

Cub company, a calendar-year entity, had 2,100 geothermal heating pumps in its beginning inventory for 20x1. On December 31, 20x0, the heating pumps had been adjusted down to $850 per unit from an actual cost of $920 per unit. It was the lower of cost or market. Cub purchased no additional units during 20x1. The following additional information is provided for 20x1: quarter date inventory (units) unit market value 1 March 31, 20x1 1,700 $ 845 2 June 30, 20x1 1,400 860 3 September 30, 20x1 1,300 830 4 December 31, 20x1 900 840. Respond to the following two independent scenarios as requested.

Answer 1

The question pertains to calculating the payback period for the installation of a more efficient heat pump system, based on current electricity costs and the energy efficiency of the pump compared to the existing heating method. The key focus is on the economic viability of the investment.

Step-by-step explanation:

The subject of the question revolves around the economic analysis of transitioning from direct electrical heating systems to more efficient geothermal heating pumps with a coefficient of performance (COP) of 3. The query is set in a real-world context where the cost of energy consumption and the potential savings are evaluated to determine the payback period for an installation of a new heating system.

An analysis of the given data leads to the calculation of the time it will take to recuperate a $5,000 installation cost of a new heat pump. The calculation is based on the current electricity cost for heating, which is $0.15 per kilowatt-hour (kWh). With the existing system using 30 kWh/day, we determine the daily cost and then compare it to the cost of running the heat pump, which would use one-third of the energy due to its higher efficiency.

The investment recovery time is a crucial piece of information for decision-making in terms of personal or business finance, especially considering the initial higher cost of the heat pump installation compared to traditional heating methods.