Internal rate of return Peace of Mind, Inc. (PMI), sells extended warranties for

Question

Internal rate of return

Peace of Mind, Inc. (PMI), sells extended warranties for durable consumer goods such as washing machines and refrigerators. When PMI sells an extended warranty, it receives cash up front from the customer, but later PMI must cover any repair costs that arise. An analyst working for PMI is considering a warranty for a new line of big-screen TVs. A consumer who purchases the 2-year warranty will pay PMI $200. On average, the repair costs that PMI must cover will average $106 for each of the warranty

Explanation / Answer

If PMI Sells Waranty it Receives $200.

On Avarage The Repair cost will be $ 106

due to this transaction PMI can generate profit of $ 96

in other words 48% on sales whereas cost of capital of PMI is 7%

so it is advised to PMI to offer this warranty for sale

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.