Reference no: EM133074210
Energy Economics and Appliances
You arepurchasing a new refrigerator and must choose between fridge A and fridge B. Fridge A is 550W, has an upfront cost of $1,400, a lifetime of 12 years, an efficiency of 54%, and a resale valueof $300. Fridge B is 250 W, has an upfront cost of $2,300, a lifetime of 18 years, an efficiency of72%, and a resale value of $500. Electricity costs $0.13 per kWh. Inflation is 3.0% per year.
a) Based on a calculation of net present value and the difference in NPV between thefridges, which fridge should you purchase? Why?
b)If the interest rate was instead 10%, what would be the NPV of each fridge? How does the difference between the NPVs compare to that in part (a)?
c) Interest rates tend to be higher in developing countries than in developed countries. Assuming that interest rates and discount rates are equal for simplicity, how would higher interest rates affect the attractiveness of investment for energy efficient technologies in developing countries?
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