Question
In: Finance
You can purchase an appliance (refrigerator, furnaces, A/C, etc.) maintenance contract. You can pay $1,000 today...
You can purchase an appliance (refrigerator, furnaces, A/C, etc.) maintenance contract. You can pay $1,000 today for a year's maintenance coverage or pay $90 per month, each month, starting today, for 12 months. If your investments earn 5.00% APR (compounded monthly), how much would you save or would it cost you (in present value terms) to pay on a monthly basis?
Solutions
Expert Solution
| PV of $90 payments | P+P×[1-(1÷(1+r))^(n-1)]÷r | |
| Here, | ||
| 1 | Interest rate per annum | 5.00% |
| 2 | Number of years | 1 |
| 3 | Number of compoundings per per annum | 12 |
| 4 = 1÷3 | Interest rate per period ( r) | 0.42% |
| 5 = 2×3 | Number of periods (n) | 12 |
| Payment per period (P) | $ 90 | |
| PV of $90 payments | $ 1,056 | |
| 90+90*(1-(1/(1+0.42%))^(12-1))/0.42% |
Making monthly payments will cost $56.
jeff jeffy answered 2 years agoRelated Solutions
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Weekly Usage
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Develop...
Jensen Tire & Auto is in the process of deciding whether to purchase a maintenance contract...
Jensen Tire & Auto is in the process of deciding whether to
purchase a maintenance contract for its new computer wheel
alignment and balancing machine. Managers feel that maintenance
expense should be related to usage, and they collected the
following information on weekly usage (hours) and annual
maintenance expense (in hundreds of dollars).
Weekly Usage
(hours)
Annual
Maintenance Expense
15
24
12
29
22
37
30
44
34
54
19
38
26
40
33
46
42
59
40
47
A.)...
Jensen Tire & Auto is in the process of deciding whether to purchase a maintenance contract...
Jensen Tire & Auto is in the process of deciding whether to
purchase a maintenance contract for its new computer wheel
alignment and balancing machine. Managers feel that maintenance
expense should be related to usage, and they collected the
following information on weekly usage (hours) and annual
maintenance expense (in hundreds of dollars).
Weekly Usage
(hours)
Annual
Maintenance Expense
16
19
13
24
23
32
31
39
35
49
20
33
27
35
34
41
43
54
41
42
a....
Jensen Tire & Auto is in the process of deciding whether to purchase a maintenance contract...
Jensen Tire & Auto is in the process of deciding whether to
purchase a maintenance contract for its new computer wheel
alignment and balancing machine. Managers feel that maintenance
expense should be related to usage, and they collected the
following information on weekly usage (hours) and annual
maintenance expense (in hundreds of dollars).
Weekly Usage
(hours)
Annual
Maintenance
Expense
13
17.0
10
22.0
20
30.0
28
37.0
32
47.0
17
30.5
24
32.5
31
39.0
40
51.5
38
40.0
(a)...
Jensen Tire & Auto is in the process of deciding whether to purchase a maintenance contract...
Jensen Tire & Auto is in the process of deciding whether to
purchase a maintenance contract for its new computer wheel
alignment and balancing machine. Managers feel that maintenance
expense should be related to usage, and they collected the
following information on weekly usage (hours) and annual
maintenance expense (in hundreds of dollars).
Weekly Usage
(hours)
Annual
Maintenance Expense
15
20
12
25
22
33
30
40
34
50
19
34
26
36
33
42
42
55
40
43
Develop...
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3,149.21
3,322.42
3,505.15
3,776.27
none of the above
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