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You just bought a car and plan on driving to campus everyday. The university no longer offers free parking because of the increase of parking needs. You have two options to buy a parking permit. A monthly permit costs $30 (due at the end of each month), which is a pay-as-you-go plan and you pay every month. However, the auxiliary services offers a discounted annual permit which only costs $250 (upfront). You may assume that the academic year (12 months) starts from Sep 1st, and ends on Aug 31st.
(1) If you plan to use the permit for all 12 months of the year, what is your internal rate of return (implicit interest rate)?
(2) If you are not going to be on campus during the summer break (two months, from Jun 1st to Aug 31st), is your internal rate of return going to change? If so, how much?
(3) You heard that a partially used annual permit can be sold easily on the black market for $15×number of remaining months unused, because the parking permit is not associated with the car plate and can be used by any car in the same class. How this is going to change your internal rate of return?
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