Problem 2

You are thinking about getting a new grill for your backyard entertaining. You have a choice between a Weber Kettle Grill that uses charcoal and a Weber Gas Grill that operates on a natural gas feed from your house. The Kettle grill costs $290 and will last about 5 years. You estimate that you will use $185 worth of charcoal each year with the Kettle grill. The Gas Grill costs $950. It does not require charcoal, but you will spend $80 per year on gas. The Gas Grill will last 8 years. Neither grill has any salvage value at the end of its useful life. Assume you have no strong preferences for food cooked over charcoal versus over a gas flame and that the discount rate is 8%. For simplicity, also assume that you pay the cost of charcoal (or natural gas) once a year, via a single payment at the end of each year. Which grill do you choose? 2 Note. Since the grill is for your private and non-commercial use, taxes and depreciation are not relevant