The owner of a new home is considering the economics of current and proposed des

ID: 1861873 • Letter: T

Question

The owner of a new home is considering the economics of current and

proposed designs. The current design is the combination of the current roof and

furnace; the proposed design is the combination of a proposed roof and

furnace. Heat losses for the current and proposed roofs are 62.4 MBtu/yr and

12.48 MBtu, respectively. The incremental cost of the proposed roof is

$3,000.00. The current furnace has an initial cost of $1,500.00 and an efficiency

of 70%. The proposed furnace has an initial cost of $3,000.00 and an efficiency

of 85%. The fuel has a price of 0.6 $/therm, an inflation rate of 4%, and a

heating value of 1,000 Btu/ft3. Money is borrowed at a yearly interest rate of

7%, and the homeowner has a tax bracket of 35%. The length of the analysis is

15 years. Compute the simple payback time and the discounted net

present value for the proposed design.

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