# Question: 1 suppose you are going to purchase a new heater...

###### Question details

1. Suppose you are going to purchase a new heater for your home. You have a choice of an electric heater or a natural gas heater. The cost of the electric heater is $4,000 and the natural gas heater is $6,000. The cost of electricity is $0.10/kwh and the cost of natural gas is $0.50/therm. Assume you use 10,000 kwh of electricity or 1,000 therms each year to heat your home. Each heater is expected to last 25 years. To simplify the problem, do not account for the time value of money.

A. If you did not account for the time value of money and you expected the prices of natural gas and electricity to remain the same, which heater would be the lowest total cost? How much would the other one cost?

B. If you assumed that the cost electricity would increase at 5% a year and natural gas would increase at 10% a year, which heater would be the lowest total cost? How much would the other one cost?

I already have A figured out I need help with B though!