Question

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 4%. Based on cost alone, which carrier should you choose?

Answer 1

Choose Carrier A

Step-by-step explanation:

Monthly perpetual cost of Carrier A=(4%/12)*200/(1-1/(1+4%/12)^24)+60=68.68

Monthly perpetual cost of Carrier B=(4%/12)*100/(1-1/(1+4%/12)^12)+70=78.51

therefore it is better to Choose Carrier A