Len Is Putting in a New Swimming Pool

question 103

Multiple Choice

Len is putting in a new swimming pool. He can either heat his pool with natural gas or with solar power. If he chooses solar power it will cost him more today, but he will recover these costs over the next 7 years in savings on his natural gas bill. The solar heater is expected to last 12 years. Len:

• A) will put in the solar heater regardless of the discount rate because the savings in natural gas outweigh the initial cost of the solar heater.
• B) is more likely to install the solar heater as the discount rate increases.
• C) is more likely to install the solar heater as the discount rate declines.
• D) will not put in the solar heater unless he is an environmentalist.

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Definitions:

Financial Lease

A type of lease in which the lessee has use of the asset for most of its useful life, and the lease terms closely resemble the terms of a purchase agreement.

Property Taxes

Taxes levied by local governments on real estate, based on the property's value, used to fund public services and infrastructure.

CRA

Canada Revenue Agency, the federal agency responsible for administering tax laws for the Government of Canada and for most provinces and territories.

Cancellation Option

A contract clause that allows a party to terminate the agreement under certain conditions before its natural end.