ME462 | Thermal Design |
Clyde McCheese, a salesman for Big Softy Water Softeners, approaches you regarding his company's water softeners. Clyde claims that hard water costs homeowners money in the form of increased water use, increased soap and detergent use, plumbing maintenance costs and the high cost of frequent clothing purchases. Big Softy offers a range of water softeners which vary in price and performance, and Clyde offers you the following information pertinent to your needs as a homeowner:
| Model Name | Price | Estimated water- consumption related costs per year* |
| Basic | $1000 | $800 |
| Basic Plus | $1200 | $650 |
| Supersoft | $1400 | $550 |
| Supersoft Plus | $1600 | $460 |
| Megasoft | $1800 | $400 |
| Megasoft Plus | $2000 | $360 |
*Based on typical water usage for a family of 4.3 (man, woman and 2.3 children).
You are considering buying a water softener, as you estimate your current water consumption related costs to be about $1000/year.
You tell Clyde you are willing to accept a simple pay back (SPB) of three years or less. Clyde encourages you to buy the Megasoft model, as based on your water costs this would give you
| SPB = | Capital | = | $1800 | = 3 years |
| Savings | $1000/year - $400/year |
Do you go with his recommendation? Why or why not?
Rather than look at SPB, you decide to maximize your return on investment (ROI) over four years instead. If the current interest rate is i = 10%, which model do you buy?
Complete HXR testing exercise