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Appropriate discount rate

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Reference no: EM132354932

Apple introduced iPhone XR last year. Now you have two options to buy the iPhone from Apple. The first option allows you to upgrade to a new unlocked iPhone every year with a monthly payment of $32.45. This option comes with an AppleCare+ (a damage replacement plan). The second option requires you to pay $649 in front with a resale value of $450 after one year and $300 after two years. In this case, pay $99 extra for the AppleCare+ that covers for two years. Note that AppleCare+ is not transferable to a new phone. If you do not care whether you can have a new phone every year or every two years, you have three choices to have an iPhone. Choice I: you can use the upgrade program; Choice II: you can pay in full in front and purchase the AppleCare+. The next year, you'll sell the old phone and buy a new one; Choice III: it is similar to Choice II, except that you will sell your old phone in two years and buy a new one. Assume that you will continue with the same choice going forward. The appropriate discount rate is 9% APR on a monthly basis.

Reference no: EM132354932

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