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

question 5

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 700 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 700 dollars, plan B would cost him 1,200 dollars, and plan C would cost him 7,700 dollars.If the interest rate is 10% and his house and the insulation job last forever, which plan is the best for Shivers?

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

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Definitions:

Reversing Entry

An accounting entry that effectively cancels out a previous entry, typically used at the beginning of a new accounting period to simplify record-keeping.

Collection Of The Note

The process of receiving the payment due from the issuer as specified in the note payable.

Deposits In Transit

Funds that have been transferred or deposited by a company but not yet reflected in the bank's records.