please help me... You are having a hard time deciding whether to get full covera

Question

please help me...

You are having a hard time deciding whether to get full coverage insurance for your new Suzuki GSXR 1000 crotch rocket or to get the minimum coverage for Colorado. The motorcycle shop gives you a sweet deal, you pay $12,000 for the bike. Full coverage insurance will cost you $400 per month. In the event of theft you have a $500 deductible, but after that the bank will give you full book value of the bike assuming a useful life of 10 years and straight line depreciation. Salvage value after 10 years is $3000. Bare bones liability (does not cover theft and will give you no money for a stolen bike) will cost you $100 per month. You are planning a trip to Daytona in exactly 2 years, at that time the bike is guaranteed to get stolen and you will not buy another. To help you make up your mind, assume a discount rate of 6% / year compounded monthly - you must consider the time-value of money! Don't simply add the cash flows. Determine the net present value to answer: Full Coverage or Colorado minimum? HINT : DRAW THE CASH FWW DIAGRAM FOR THE TWO SCENARIOS AND FIND THE PRESENT VEWE OF EACH.

Explanation / Answer

a

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