Homework Help is Here – Start Your Trial Now!
Business
Accounting
Allison bought a Blu-ray DVD player from the store for $275 that came with a one-year warranty. At checkout, she was asked if she would like to buy a two-year extended warranty that would replace her DVD player with an identical one if it broke down. The extended warranty costs $70, and Allison expects that the DVD player will depreciate in value by $50 every year as new models come out (this means a replacement would cost $175 after 2 years and $125 after 3 years). Suppose Allison pays for the purchase of the extended warranty with her credit card, which has a 5 percent interest rate. Also assume that Allison knows there is a 10 percent chance that the DVD player will break in any given year. The present value of buying the extended warranty is $24.79. (Round your response to two decimal places and use a minus sign if necessary.)

Allison bought a Blu-ray DVD player from the store for $275 that came with a one-year warranty. At checkout, she was asked if she would like to buy a two-year extended warranty that would replace her DVD player with an identical one if it broke down. The extended warranty costs $70, and Allison expects that the DVD player will depreciate in value by $50 every year as new models come out (this means a replacement would cost $175 after 2 years and $125 after 3 years). Suppose Allison pays for the purchase of the extended warranty with her credit card, which has a 5 percent interest rate. Also assume that Allison knows there is a 10 percent chance that the DVD player will break in any given year. The present value of buying the extended warranty is $24.79. (Round your response to two decimal places and use a minus sign if necessary.)

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question

K17.

 

Allison bought a Blu-ray DVD player from the store for $275 that came with a one-year warranty. At checkout, she was asked if she would like to buy a two-year extended warranty that would replace her DVD player with an identical one if it broke down. The extended warranty costs $70, and Allison expects that the DVD player will depreciate in value by $50 every year as new models come out (this means a replacement would cost $175 after 2 years and $125 after 3 years). Suppose Allison pays for the purchase of the extended warranty with her credit card, which has a 5 percent interest rate. Also assume that Allison knows there is a 10 percent chance that the DVD player will break in any given year. The present value of buying the extended warranty is $ - 24.79. (Round your response to two decimal places and use a minus sign if necessary.)
Transcribed Image Text:Allison bought a Blu-ray DVD player from the store for $275 that came with a one-year warranty. At checkout, she was asked if she would like to buy a two-year extended warranty that would replace her DVD player with an identical one if it broke down. The extended warranty costs $70, and Allison expects that the DVD player will depreciate in value by $50 every year as new models come out (this means a replacement would cost $175 after 2 years and $125 after 3 years). Suppose Allison pays for the purchase of the extended warranty with her credit card, which has a 5 percent interest rate. Also assume that Allison knows there is a 10 percent chance that the DVD player will break in any given year. The present value of buying the extended warranty is $ - 24.79. (Round your response to two decimal places and use a minus sign if necessary.)
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Frauds in Accounting information system (AIS)
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS