Question

MA: To Rent or To Buy

(Payback Period Analysis) To Rent or To Buy: This is the ? Purpose:

This assignments will assess knowledge capital investment analysis. The assignment is related to CLO4: Analyze cost behaviors using various financial analysis.

Information: Mainstream households have internet service providers. One internet provider is ABC Warner Cable. Customers at ABC Warner Cable Company require a cable modem. The cable company offers you a modem for $14.99 per month for the duration of services. An alternative option, is for the outright purchase of a modem for $159.99.

Requirement: Answer the following questions, making sure to show all work and calculations. State your answer complete sentence structure, using capital investment analysis concepts.

The attached rubric displays grading criteria. For this specific assignment, feedback will be given 24 hours after the due date. There is one attempt on this assignment.

This assignment should be submitted based on individual knowledge and is not group based. What is the payback period (in months) if you decide to purchase the ABC Warner modem? What are the advantages to renting a cable modem from ABC Warner? What are the advantages to buying a cable model from ABC Warner?

Answer 1

As there is no cost of capital specified, the payback period = $159.99/14.99 = 10,67years, approximately 11 years if one decides to purchase the modem.

The advantages of renting a cable modem from ABC Warner is that no one time cash flow will be incurred today and the value of the money will be lower in future years, thereby making rent a cheaper option.

The advantages of buying a cable modem is that post 11 years, the cable can be still used and no money would be incurred after the 11 year, whereas rent would be required to pay even after 11th year.