New Hospice is building an extension. It can use single-pane glass windows that
ID: 2447874 • Letter: N
Question
New Hospice is building an extension. It can use single-pane glass windows that cost $100 each or it can buy double-pane windows that cost $150 each. The windows should last 20 years before they have to be replaced. The hospice expects that heating costs will be lower by $5 per year for each double-pane window. The hospice can borrow or invest money at 10%. Which type of window should it buy? What would your answer be if the interest rate was 6%? Why did changing the interest rate change the answer?
Explanation / Answer
Cost of single pane glass = $ 100 each
Cost of double pane window c = $ 150
Less: Savings in Heating Cost 100 (20*5)
Net cost 50
Double pane windows should be accepted.
Hefre the time value of money has been assumed to be zero