(Solution Download) The present price year 0 of kerosene is 3 20 per


The present price (year 0) of kerosene is $3.20 per gallon, and its cost is expected to increase by $0.15 per year. (At the end of year 1, kerosene will cost $3.35 per gallon.) Mr. Garcia uses about 800 gallons of kerosene for space heating during a winter season. He has an opportunity to buy a storage tank for $600, and at the end of four years, he can sell the storage tank for $100. The tank has a capacity to supply four years of Mr. Garcia's heating needs. So, he can buy four years' worth of kerosene at its present price ($3.20), or he can invest his money elsewhere at 6% interest. Should he purchase the storage tank? Assume that kerosene purchased on a pay-as-you-go basis is paid for at the end of the year. (However, kerosene purchased for the storage tank is purchased now.)

 







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