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Low-energy lightbulbs typically cost $3.75, have a life of nine years, and use about $1.85 of...

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Finance

Low-energy lightbulbs typically cost $3.75, have a life of nineyears, and use about $1.85 of electricity a year. Conventionallightbulbs are cheaper to buy, for they cost only $.55. On theother hand, they last only about a year and use about $6.85 ofenergy.   

a. If the real discount rate is 6%, what is theequivalent annual cost of the two products? (Do not roundintermediate calculations. Enter your answers as a positive valuerounded to 2 decimal places.)

Equivalent Annual Cost

Low-energy lightbulbs

$

Conventional lightbulbs

$

b. Which product is cheaper to use?

Low-energy lightbulbs
Conventional lightbulbs

Answer & Explanation Solved by verified expert
3.8 Ratings (561 Votes)
a EAC NPV r 1 1 rn where NPV net present value r discount rate n time period in years NPV of Lowenergy lightbulbs initial cost present value of    See Answer
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