Chillingsworth Has a Neighbor, Shivers, Who Faces the Same Options

question 3

Multiple Choice

Chillingsworth has a neighbor, Shivers, who faces the same options for insulating his house as Chillingsworth.But Shivers has a larger house.Shivers's annual fuel bill for home heating is 900 dollars per year.Plan A will reduce his annual fuel bill by 15%, plan B will reduce it by 20%, and plan C will eliminate his need for heating fuel altogether.The plan A insulation job would cost Shivers 900 dollars, plan B would cost him 1,700 dollars, and plan C would cost him 9,900 dollars.If the interest rate is 10% and his house and the insulation job last forever, which plan is the best for Shivers?

• A)Plans A and B are equally good.
• B)Plan B.
• C)Plan A.
• D)Plan C.
• E)He is best off using none of the plans.

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Definitions:

Annual Carrying Costs

The total expenses associated with holding or storing inventory over a year, including costs related to storage, insurance, and obsolescence.

Ordering Costs

Expenses associated with making an order for goods or services, including administrative costs, shipping charges, and time spent on ordering processes.

Carrying Costs

Expenses associated with holding inventory, including storage, insurance, and obsolescence.

Gadgets

Small electronic or mechanical devices or tools that are innovative and designed for a particular purpose.