Take care of the maintenance of the equipment

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Reference no: EM13971887

A contractor estimates that maintenance on a new piece of equipment will be $275 for the first month and it will increase by 0.5% each month afterwards. However, the contractor is offered a service contract that would maintain the equipment for a total of $18500 for a 4-year period. To further encourage the contractor to purchase a service contract, he was offered a 10% reduction on the cost of the service contract if it is purchased at the same time as the piece of equipment. If the nominal annual interest is 9% (compounded monthly), should the contractor purchase the 4-year service contract or should he take care of the maintenance of the equipment?

Reference no: EM13971887

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