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In Major Assignment 1, you created a monthly budget, which included a recurring cost for utilities. Here, you'll consider making some energy-saving home improvements and compare your potential savings against paying off the cost of those improvements.

Next, you'll develop a cost to install energy-efficient improvements (installing energy-efficient doors and windows, adding insulation, upgrading to more efficient appliances or lights, and so on) and then calculate a monthly payment if you were to finance the installation cost by a loan of 5, 10, or 15 years.

For all the above calculations, you will look up rates in the following historical table of 30-year fixed mortgage rates, based on the years and months specified.

Now, from the list below the table below, select four countries that start with the first two letters of your first and last names.

Paper For Above Instructions

The task at hand involves compiling a comprehensive financial analysis using Microsoft Excel. This analysis will evaluate potential savings from energy-efficient home improvements against the cost of financing those improvements with a loan. The goal is to ensure the calculations are accurately executed, formatted correctly, and that all necessary information is presented clearly.

1. Overview of Energy-Saving Improvements

Homeowners are constantly searching for ways to reduce energy consumption and thereby cut recurring costs associated with utilities such as electricity, gas, and water. Energy-efficient improvements, such as installing LED lighting, improving insulation, or upgrading heating and cooling systems, can lead to significant savings. The aim of this assignment is to quantify these savings over a period of years and compare them to the financial implications of taking out a loan to fund these improvements.

2. Monthly Utility Costs

To begin the analysis, one must first examine the current monthly utility costs:

  • Electric: $72.50
  • Gas: $72.50
  • Water: $50.00
  • Other: $0.00

The total cost per month comes to $195.00. For the purpose of this analysis, a monthly savings percentage needs to be established. Assuming a conservative estimate of a 20% savings from energy-efficient initiatives, the calculations will reflect how this saving accumulates over time.

3. Excel Calculations

All calculations will utilize Excel's formula capabilities. For the potential savings calculations, the formula is:

A = P  ((1 + r/n)^(nt) - 1) / (r/n)

Where:

- A = total amount accrued after t years,

- P = monthly contributions,

- r = annual interest rate,

- n = number of contributions per year,

- t = number of years.

4. Detailed Savings Projections

Assuming a monthly contribution of $39 (20% of the total utility cost), the analysis will include projections for savings over 5, 10, and 15 years using different interest rates sourced from a historical mortgage rate table.

  • 5-year savings calculation projection:

    Using an interest rate of 4%, with 12 contributions per year, this sums to:

    A = 39  ((1 + 0.04/12)^(125) - 1) / (0.04/12)
  • 10-year savings calculation projection:

    Using an interest rate of 4.5%, over 120 months, results in:

    A = 39  ((1 + 0.045/12)^(1210) - 1) / (0.045/12)
  • 15-year savings calculation projection:

    At an interest rate of 5%, projected savings totals:

    A = 39  ((1 + 0.05/12)^(1215) - 1) / (0.05/12)

5. Loan Considerations

Next, let’s consider financing the installation of energy-efficient equipment. Taking out a loan for such improvements could entail the following, based on the same principal of $15,000:

  • Calculate monthly payments using the formula: 
    PMT = P(r/n) / (1 - (1 + r/n)^(-nt))

Should this loan be financed over, say, 10 years at an interest rate of 3.5%, one would have to compute:

PMT = 15000 * (0.035/12) / (1 - (1 + 0.035/12)^(-120))

6. Comparative Analysis

Finally, after calculating the total savings from energy improvements and the total cost of loans taken out, one must perform a comparative analysis of the total savings at the end of the loan period:

  • Total savings versus total loan payments.

If total savings exceed total payments, then the investment in energy efficiency is justified. Conclusions drawn from this analysis could shed light on financial prudence in home investments.

References

  • Bureau of Labor Statistics. (2023). Consumer Price Index - CPI. Retrieved from [BLS website].
  • Federal Housing Finance Agency. (2023). Historical Mortgage Rates. Retrieved from [FHFA website].
  • Energy Star. (2023). Benefits of Energy Efficiency. Retrieved from [Energy Star website].
  • U.S. Department of Energy. (2023). Energy Saver Guide. Retrieved from [DOE website].
  • Investopedia. (2023). How to Calculate Monthly Loan Payments. Retrieved from [Investopedia website].
  • HomeAdvisor. (2023). Costs to Install Energy Efficient Doors. Retrieved from [HomeAdvisor website].
  • Bankrate. (2023). Current Mortgage Rates. Retrieved from [Bankrate website].
  • NerdWallet. (2023). Estimating Home Energy Improvements. Retrieved from [NerdWallet website].
  • The Motley Fool. (2023). Understanding Loan Payments. Retrieved from [Motley Fool website].
  • Consumer Reports. (2023). Energy Efficiency Purchase Benefits. Retrieved from [Consumer Reports website].

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