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Anita Tahani, who owns a travel agency, bought an old house to use as her business office. She found that the ceiling was poorly insulated and that the heat loss could be cut significantly if 6 inches of foam insulation were installed. She estimated that with the insulation, she could cut the heating bill by $40 per month and the air-conditioning cost by $25 per month. Assuming that the summer season is three months (June, July, and August) of the year and that the winter season is another three months (December, January, and February) of the year, how much can Anita spend on insulation if she expects to keep the property for five years? Assume that neither heating nor air-conditioning would be required during the fall and spring seasons. If she decides to install the insulation, it will be done at the beginning of May. Anitas interest rate is 9% compounded monthly.
: Reduction in heating cost= $40 per month As summer lasts for 3 months, she can save the air-conditioning costs worth = 25*3= $75 As winter lasts for 3 months, she can save the heating cost worth = $40*3= $ 120 Thus, with installation of the foam she can save = $120+75=$195 per year Assuming that the foam installation does not not damaged and can last for 5 years, the saving she can do during these 5…

ars= 195*5 = $975 Thus, she can plan to invest a maximum of $975 to benefit from the installation of foam. If she finances this amount by a loan and will pay it off at the end of 5 years, the amount that has to be repaid = 975 ( 1+0.09/12)^(12 *5) = 975*1.5656 = $ 1526.53


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