An internet site claims that: "A National Association of Home Builder survey found that if a home shows reduced energy costs of $1,000 annually, the average home buyer will be willing to pay an additional $8,728." However, any increase in the cost of the home also increases the annual expenses paid for the loan (= mortgage), real estate taxes, and insurance.

Assume that the energy savings is due to reduced electricity consumption and that: Mortgage rate i = 0.045/year; loan period = 15 years Insurance rate u = 0.003/year Tax rate x = 0.025/year Cost of electricity c = $0.12/kWh

a. What is the capital recovery factor (i.e., the annual loan payment) during the period when the loan is being repaid? Refer to the Economics lecture, slide 32.

b. Summing up the annual payments for the loan, insurance, and real estate tax, what is the additional annual cost associated with the additional $8728 in home cost?

c. How many kWh must be saved to generate $1000 in annual energy savings?