Question

You are considering two home security companies for your new house. The first company offers free...

You are considering two home security companies for your new house. The first company offers free installation and equipment, but will charge you $490.00 per year for the next five years. The second company charges $709.00 for installation, but will charge you $216.00 per year for the next five years. Assume that payments are at the END of the year. Your personal interest rate is 5.00%.

What is the PV of the free installation option? What is the PV of the paid installation? Express answers as a negative and round to 2 decimal places.

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Answer #1

PV of free installment option is calculated in excel and screen shot provided below:

PV of free installment option is -$2,121.14.

again,

PV of paid installment option is calculated in excel and screen shot provided below:

PV of paid installment option is -$1,644.17.

Since, PV of paid installment option is higher than PV of Free installment option. So you should choose paid installment option.

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