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A geothermal heat pump can save up to 80% of the annual heating and cooling bills of a certain home in the northeastern U.S. In this region, the yearly cost of conventionally heating and cooling a 2,000 square foot house is about $2,500. With a federal tax credit of 30% on the total installation of the system, how much can a homeowner afford to spend for a geothermal heat pump if the interest rate is 9% per year? The expected life of the heat pump is 15 years

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Based on the amount of savings to be made on the geothermal heat pump, the amount a homeowner can spend on a geothermal heat pump is $23,030.57

What is the present value of the savings?

First find the present value of the savings. The savings are:
= 80% x 2,500

= $2,000

Present value is:

= 2,000 x (Present value interest factor of annuity, 15 years, 9%)

= 2,000 x 8.0607

= $16,121.40

What amount can a homeowner spend?

= Present value of savings / (1 - Tax credit)

= 16,121.40 / ( 1 - 30%)

= $23,030.57

Find out more on present value of annuity at https://brainly.com/question/25792915.

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