Question
In: Finance
7) You are trying to decide between two mobile phone carriers. Carrier A requires you to...
7) You are trying to decide between two mobile phone carriers. Carrier A requires you to pay $200 for the phone and monthly charges of $60 for 24 months. Carrier B wants you to pay $100 for the phone and monthly charges of $70 for 12 months. Assume you will keep replacing the phone after your contract expires. Your cost of capital is 3% APR, compounded monthly.
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Expert Solution
| Project A | Year | Cash flow | × discount factor | Present value |
| $ 200 | $ 200.00 | |||
| 1-24 | $ 60 | 23.265980 | $ 1,395.96 | |
| Total | 23.265980 | $ 1,595.96 | ||
| (a) | EAC | 1595.96/ 23.26598 | $ 68.60 | |
| Project B | Year | Cash flow | × discount factor | Present value |
| $ 100 | $ 100.00 | |||
| 1-12 | $ 70 | 11.807254 | $ 826.51 | |
| Total | 11.807254 | $ 926.51 | ||
| (b) | EAA - B | 926.51/ 11.807254 | $ 78.47 |
Equal monthly cost for A is $68.6 and for B is $78.7
It is better to take Carrier A.
jeff jeffy answered 1 year agoRelated Solutions
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