You are faced with the decision of what to do with your cellular phone contract.

Question

You are faced with the decision of what to do with your cellular phone contract. You are given the option to buy a new i-Phone 6 for $799.98 and be off contract with AT&T, your current provider, for a monthly savings of $30/ month. You expect that the phone will last you three years. Based on the NPV evaluation method, should you purchase the phone and stay off contract? Explain why or why not. Express your figure on an annual basis and assume that you can earn 8% on alternative investments. What alternative you will choose? Show your calculator inputs for each decision.

Explanation / Answer

Present value of monthly saving =PVAF@.66667%, 36 * Amount

                                 = 31.91179 * 30

                                = $ 957.35

NPV = 957.35 -799.98 = $ 157.37

Since NPV of buying new I-phone is positive ,You should buy new i -phone .

**Monthly rate = 8 /12 = .66667% , Number of months = 12* 3 = 36

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