You are financing the new iphone today (worth $940). It is $100 up-front today and $35...

 

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You are financing the new iphone today (worth $940). It is $100 up-front today and $35 a month every month for the next 2 years (24 months). You are offered insurance for the iphone that charges nothing today but an extra $15 a month. The insurance will cover your expense to fix/replace your phone in the event of serious or moderate accidents. • The chance of moderate accident in any month is 4% with an average cost of $200. The chance of a serious accident in any month is 1% with an average cost of $900. • a. Draw a decision tree. b. Should you purchase insurance or not? c. Using incremental analysis, what is the incremental NPV? You are financing the new iphone today (worth $940). It is $100 up-front today and $35 a month every month for the next 2 years (24 months). You are offered insurance for the iphone that charges nothing today but an extra $15 a month. The insurance will cover your expense to fix/replace your phone in the event of serious or moderate accidents. • The chance of moderate accident in any month is 4% with an average cost of $200. The chance of a serious accident in any month is 1% with an average cost of $900. • a. Draw a decision tree. b. Should you purchase insurance or not? c. Using incremental analysis, what is the incremental NPV?

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