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cost $72,500, but the company estimates that it would save $14,575 worth of labor and materials costs annually. What
is the payback period for this investment?- A wholesale club charges a $20 annual membership fee. Members are given the opportunity to upgrade to a “higher”
membership level, which instead charges $75 a year but offers a 2% rebate on all purchases made during the year.
How much would you have to buy at this wholesale club during the year to break even on the “higher” membership
level? - Frank’s credit card has no annual fee, but charges a 23.99% interest rate. His card issuer offers him the opportunity to
switch to a new card with a lower 16.99% rate, but that card has a $35 annual fee. How much of an average balance
would Frank have to carry in order for it to be worth switching to the new card? - A real estate developer is building a new offi ce building. If he uses a high-effi ciency natural gas heating system, he
estimates that the system itself will cost $75,000 to install and cost $18,575 a year to operate. A geothermal heat
pump would be more expensive to install, costing $160,000 up front, but could be operated for only $5,800 per year.
Calculate the payback period for the geothermal system. - Gary is shopping for a new car. The model car he wants can be bought as a conventional model costing $18,500 or
a hybrid costing $21,700. The conventional model will get 32 miles per gallon overall, while the hybrid will deliver
48 miles per gallon overall.
Gary drives 15,000 miles per year on average. Assume that gas costs $3.25 per gallon.a. Calculate the number of gallons of gas Gary would use in a year with each model.
b. Calculate how much Gary would spend each year for gas with each model.
c. What is the payback period for buying the hybrid?- A snowplow service charges $15 per visit or $120 for the entire winter. How many visits would it take to make it
worthwhile fi nancially for a customer to pay for the entire winter at once? - A bookstore allows customers to buy a special discount card for $25. If you purchase the card, you get an immediate
$10 discount, and then receive a further 12% discount on all purchases throughout the year. How much would you have
to buy at this bookstore to break even on the purchase of a discount card?
B. Payback Periods When Payments Vary- An exterminator charges $199 for a “comprehensive” visit and $49 for a “maintenance” visit. Rob and Laura will need
to have the exterminator come out for a comprehensive visit 4 months from now and again every 6 months after that;
the exterminator comes out for a maintenance visit every month that he is not scheduled for a comprehensive one.
The exterminator offers an annual plan that would cover all of these visits for $599 per year. What would Rob and
Laura’s payback period be for this plan?- Jude has a medical condition for which he needs to visit his doctor every 6 weeks. With his current health insurance, he
pays a $25 copay for each of these visits. He also has three prescriptions that must be fi lled every 4 weeks, which each
carry a $15 copayment, and every 12 weeks he must fi ll a fourth prescription that carries a $50 copay.
Exercises 14.2 577