You are purchasing a lawnmower and the salesperson is trying to convince you to buy an extended warranty for 4 years. The cost of the warranty today is $500. To try to convince you more to buy the warranty, the salesperson offers you a credit of $100 at the end of the two years if you don’t require any services and therefore don’t use the warranty. Assuming that you will be able to use the credit towards annual maintenance starting in the third year of owning the lawnmower answer the following questions: a) What is the value to you today of the promised credit from the supplier. Assume an interest rate of 6% per year. b) Given your answer in a) above, what is the net cost of the extended warranty?
You are purchasing a lawnmower and the salesperson is trying to convince you to buy an extended warranty for 4 years. The cost of the warranty today is $500. To try to convince you more to buy the warranty, the salesperson offers you a credit of $100 at the end of the two years if you don’t require any services and therefore don’t use the warranty. Assuming that you will be able to use the credit towards annual maintenance starting in the third year of owning the lawnmower answer the following questions: a) What is the value to you today of the promised credit from the supplier. Assume an interest rate of 6% per year. b) Given your answer in a) above, what is the net cost of the extended warranty?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
100%
You are purchasing a lawnmower and the salesperson is trying to convince you to buy an extended warranty for 4 years. The cost of the warranty today is $500. To try to convince you more to buy the warranty, the salesperson offers you a credit of $100 at the end of the two years if you don’t require any services and therefore don’t use the warranty. Assuming that you will be able to use the credit towards annual maintenance starting in the third year of owning the lawnmower answer the following questions:
a) What is the value to you today of the promised credit from the supplier. Assume an interest rate of 6% per year.
b) Given your answer in a) above, what is the net cost of the extended warranty?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education