A Company Is Considering Two Types of Water Heaters

question 5

Short Answer

A company is considering two types of water heaters. The associated costs are shown below. The estimated annual cost of operation for oil heaters equals 365 x 41045/EF x Fuel Cost per Btu. The estimated annual cost of operation for electric heaters equals 365 x 12.03/EF x Electricity Cost per kWh. How much money could be saved each year if the company used an oil heater? $$\begin{array} { | l | l | l | } \hline \text { Alternative } & \text { Electricity } & \text { Oil } \\\hline \text { Price of water heater } & \$ 39,000 & \$ 36,000 \\\hline \text { EF } & 2.05 & 1.7 \\\hline \text { Fuel cost } & \$ 0.095 / \mathrm { kWh } & \$ 0.0000064 / \mathrm { Bt } \\&&u\\\hline \text { Annual maintenance costs } & \$ 1000 & \$ 500 \\\hline\end{array}$$

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Definitions:

U.S. Treasury Department

A federal government department responsible for managing government revenue, issuing currency, and supervising national banks.

Discount Rate

The interest rate used in discounted cash flow analysis to determine the present value of future cash flows.

Interest Rate

The cost of borrowing money, expressed as a percentage of the amount borrowed, or the return earned on invested funds.

Money Supply

The aggregate monetary assets within an economy at a certain instant, including cash, coins, and the money in checking and savings accounts.