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11.10 (0) Chillingsworth owns a large, poorly insulated home. His annual fuel bill for home heating averages $300 per year. An insulation contractor suggests to
11.10 (0) Chillingsworth owns a large, poorly insulated home. His annual fuel bill for home heating averages $300 per year. An insulation contractor suggests to him the following options. Plan A. Insulate just the attic. If he does this, he will permanently reduce his fuel consumption by 15%. Total cost of insulating the attic is $300. Plan B. Insulate the attic and the walls. If he does this, he will perma- nently reduce his fuel consumption by 20%. Total cost of insulating the attic and the walls is $500. Plan C. Insulate the attic and the walls, and install a solar heating unit. If he does this, he will permanently reduce his fuel costs to zero. Total cost of this option is $7,000 for the solar heater and $500 for the insulating. (a) Assume for simplicity of calculations that the house and the insulation will last forever. Calculate the present value of the dollars saved on fuel from each of the three options if the interest rate is 10%. The present values are: Plan A? Plan B? Plan C
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