PEX is cheaper and widely accepted for DHW use. It has been in use for well over a decade and has proven itself not to just be a 'new thing'.
How much are you finding 40 gal water heaters for? The cheapest ones I've found are $225 on homedepot.com, and most are $300-$400. The on demand (point of use) electric water heaters start just over $150.
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