You want the new top of the line mobile phone. Which is a better option? Option 1:
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Question:
You want the new top of the line mobile phone. Which is a better option? Option 1: You purchase the phone for $929 plus 12% taxes and you keep your monthly phone service plan. You currently pay $55 plus 12% taxes per month for this plan. You are required to prepay monthly plan payments one month ahead. Option 2: You lock into a monthly phone service plan (same plan features as above) for $105 plus 12% taxes per month for two years. There is a $35 plus 12% taxes activation charge. This subscription offers the same phone as above for $229 plus 12% taxes. You are required to prepay monthly plan payments one month ahead. Assume for both options a cost of capital of 4.5%
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