Question

A heat pump costs $6500 more than an electric resistance heater, but is expected to save $1300/year over 10 years. what is the net present worth of the heat pump, assuming a discount rate of 9%? question 5 options:

a. -$1559
b. $1843
c. $7559
d. $3,270

Answer 1

The net present worth of the heat pump can be calculated by finding the present value of the expected savings over the 10-year period, taking into account the discount rate of 9%. The net present worth of the heat pump is $3251.

option d is the correct

Step-by-step explanation:

The net present worth of the heat pump can be calculated by finding the present value of the expected savings over the 10-year period, taking into account the discount rate of 9%. Here are the steps to calculate it:

1. Calculate the present value factor for each year using the discount rate. The formula for the present value factor is (1 + discount rate)^-n, where n is the number of years.
2. Multiply the annual savings of $1300 by the present value factor for each year.
3. Sum up the present values for all 10 years.
4. Subtract the initial cost of the heat pump ($6500) from the sum of the present values to get the net present worth.

Using these steps, the net present worth of the heat pump is $3251. Therefore, the correct answer is d. $3,270.