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Question 283803: Good day. I need some help on this one problem, and I'd be terribly appreciative if anyone would bother to check it out. Here goes:
A man insured a building for $10,000 at an annual rate of 1-1/2%. He equipped the building with automatic sprinklers at a cost of $1,250. The fire insurance company then reduced the rate on his property to 1/4% per year. In how many years would the savings on the premiums pay for the sprinklers?
Thank you very much and more power!
Answer by Theo(13342)   (Show Source):
You can put this solution on YOUR website! man insures building for $10,000 at annual rate of 1 and 1/2 percent per year.
That's 1.5% divided by 100% = a rate of .015 per year.
This means he would be paying .015*10000 = 150 per year.
He pays $1250 for a sprinkler.
Insurance company reduces the rate on his property to 1/4% per year.
That's .25% divided by 100% = a rate of .0025 per year.
This means he would be paying .0025*10000 = 25 per year.
The difference in what he would be paying per year would be 150 - 25 = 125 a year.
In other words, he would be saving 125 per year on the insurance rates he is paying because he bought the sprinkler.
1250 / 125 = 10.
He will make his money back in 10 years.
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