Microeconomics 14th Edition by James Gwartney ,Richard Stroup,Russell Sobel ,David Macpherson

Exercise 8

Suppose you are moving into a new apartment you expect to rent for five years. The owner of the apartment offers to provide you with a used refrigerator for free and promises to maintain and repair the refrigerator during the next five years. You also have the option of buying a new energy-efficient refrigerator (with a five-year free maintenance agreement) for $700. The new refrigerator will reduce your electric bill by $150 per year and will have a market value of $200 after five years. If necessary, you can borrow money from the bank at an 8 percent rate of interest. Which option should you choose?