Gas heaters cost $10,000 to purchase, result in yearly gas bills of $1,000, and last 6 years. Electric heaters cost $6,000 to purchase, result in yearly electric bills of $2,300, and last for 10 years. The discount rate is 12 percent per year. Calculate the equivalent annual costs for the gas and electric heaters.

Question 9 options:

EAC Gas ($3,536.73) EAC Electric ($3,361.91)

EAC Gas ($3,432.26) EAC Electric ($3,361.91)

EAC Gas ($2,987.27) EAC Electric ($3,009.38

EAC Gas ($2,987.27) EAC Electric ($3,589.35)

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Gas heaters cost $10,000 to purchase, result in yearly gas bills of $1,000, and last 6 years. Electric heaters cost $6,000 to purchase, result in yearly electric bills of $2,300, and last for 10 years. The discount rate is 12 percent per year. Having calculated the equivalent annual costs for the gas and electric heaters, which heater is more cost effective?

Question 10 options:

The electric heater is more effective because it has the lower EAC.

The gas heater is more effective because it has a lower EAC.

Cannot tell which is more effective from an EAC analysis.

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You decide to start a new taxi service in your spare time. The first thing you need to do is buy a car. After visiting Mr. Charming Salesman at Sundance Used Cars, you have narrowed your choice to 3 possibilities. The three cars you can afford and their yearly net revenues (fares - gas & maintenance) are listed below. Remember each car must be replaced when it finally dies if you are to remain in business. Assuming an appropriate discount rate of 3.5% which one would you buy?

Year	VW Bug	Yugo	Ford Tempo
0	-$500	-$1,800	-$3,000
1	800	1,400	1,400
2	800	1,400	1,400
3	800		1,400
4			1,400

Question 12 options:

Buy the Yugo it has the highest NPV at $859.57

Buy the VW it has the highest NPV at $1,741.31

Buy the Ford Tempo it has the highest EAA at $873.45

Buy the VW it has the highest EAA at $621.53

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project A has an IRR of 23.4%. Project B has an IRR of 33.1%. The firm's cost of capital is 18%. Now you are told that the cash flows of the two projects are as shown below. Which project is better, A or B, or can't you tell?

	Period 0	Period 1	Period 2	Period 3	IRR
Project A	-500	+250	+250	+250	23.4%
Project B	-200	+115	+115	+115	33.1%

Question 2 options:

	Project A is better because it has a larger NPV
	Project B is better because it has a larger NPV
	The projects have the same NPV
	Cannot tell