Peter is a salesman for Kroner industries which specializes in making of natural gas furnaces. Peter has told you that your current furnace needs to be replaced and he offers the following choices. All furnaces have a useful life of 10 years.

Choice L (Low efficiency furnace)

Initial cost is $2,100 including complete installation.

Heating cost is expected to be $1,450 and increasing at 4% every year.

Choice M (Medium efficiency furnace)

Initial cost is $2,700 including complete installation.

Heating cost is expected to be $1,300 and increasing at 4% every year.

Choice H (High efficiency furnace)

Initial cost is $4,000 including complete installation.

Heating cost is expected to be $1,150 and increasing at 4% every year.

Which furnace will you choose? Why? Use net annual cost to determine the best alternative.

Use interest rate of 8% per year.