Why should purchase the extended warranty

Reference no: EM13239688

Automobile companies often provide a 3-year warranty on new vehicles. Consumers must pay for extended warranties beyond the manufacturer's warranty period. Suppose that a 5-year extended warranty is offered for your new vehicle at a price of $1,415. This would cover years 4 and 5, after the manufacturer's warranty has expired. Suppose that the expected repair costs for years 4 and 5 are $850 per year. If your discount rate is 5.5% per year, should you purchase the extended warranty?

Reference no: EM13239688

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