n environmentally, friendly 3,000 square-foot green home (99% air tight) cost ab

ID: 2484907 • Letter: N

Question

n environmentally, friendly 3,000 square-foot green home (99% air tight) cost about 9% more to construct than a same-sized conventional home. Most green homes can save 17% per year on energy expenses to heat and cool the living space. For a $262,000 conventional home with a heating and cooling bill of $4,000 per year, how much would have to be saved in energy expenses per year to justify the home (e, B-C ratio greater than or equal to one? The discount rate is 9% per year, and the expected life of the home is 20 years?

Explanation / Answer

Calculation of annual saving in energy expenses justify the green home:

In order of make the green home justifiable, the Present value of Annual Saving should be equal to Present value of Additional Cash outflows

Present value of additional cash outflow = 9% of $262000 =

23580

Time (Years )

Discount Rate

Present value of Annuity $1 (20 years , 9%)

9.12855

Annual Savings = 23580 / 9.12855 =

$ 2,583.10