A homeowner must buy a new furnace. two choices exist; a standard efficiency model having an average fuel use efficiency (AFUE) of 70 percent or a high efficiency model having an AFUE of 90 percent. Based on these efficiencies, to provide the necessary heat lo the house, a standard furnace will consume 136.3 thousand cubic feet (MCF) of gas per year and a high efficiency model will consume 106. MCF per year. Other data are:
| Standard | High |
Initial cost ($) | 2500 | 3500 |
Annual repair cost ($) | 100 | 250 |
Lifetime (years) | 20 | 20 |
Using a 7% interest rate and annual cash flow analysis, at what unit cost of gas ($ per MCF) will the two alternatives be of equal economic worth? Draw the breakeven chart for the two alternatives, showing the breakeven point. If gas costs $7.80 per MCF which alternative is preferable?
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