You Are Considering Purchase of a New Furnace

question 7

Multiple Choice

You are considering purchase of a new furnace. Its initial cost, including installation, is $3 000, and it will cost $200 a year in fuel over its 10-year life. You expect that it can then be sold for $300. If your MARR is 10%, what is the equivalent annual cost of owning the furnace?

• A)$469
• B)$569
• C)$669
• D)$769
• E)$869

Explain the law of small numbers and its role in misjudging statistical probabilities.

Define affect heuristic and its application in quick decision-making processes.

Describe the concept and implications of house money in behavioral finance.

Understand the principle of regret aversion and its effects on decision-making.

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Definitions:

Leverage Ratio

A financial metric measuring the amount of debt used by a company to finance its assets relative to the value of those assets.

Insolvent

Insolvent refers to the inability of an individual or organization to meet its financial obligations as they become due, due to a lack of sufficient assets.

Reserve Requirements

Regulations set by the central bank determining the minimum amount of reserves each bank must hold against deposits.

Fed

The Federal Reserve System, which is the central banking system of the United States responsible for monetary policy.