Question

You are trying to decide between two mobile phone carriers. Carrier A requires you to pay $200 for the phone and then monthly charges of $60 for 24 months. Carrier B wants you to pay $100 for the phone and monthly charges of $70 for 12 months. Assume you will keep replacing the phone after your contract expires. Your cost of capital is 4%.

Based on cost​ alone, which carrier should you​ choose? Based on cost​ alone, you will choose

▼

Carrier B

Carrier A

​(Select from the​ drop-down menu.)

Answer 1

Carrier A

(Since it has a lower cost than B)

The Cash flows adjusted for unequal lives are as below

Month	Carrier A	Carrier B
0	200	100
1	60	70
2	60	70
3	60	70
4	60	70
5	60	70
6	60	70
7	60	70
8	60	70
9	60	70
10	60	70
11	60	70
12	60	-30
13	60	70
14	60	70
15	60	70
16	60	70
17	60	70
18	60	70
19	60	70
20	60	70
21	60	70
22	60	70
23	60	70
24	60	70

AutoSave Off Book1 Excel Sign in Comments Share O Tell me what you want to do File Formulas Review View Help Home Insert Draw Page Layout Data Σ X Insert A A Calibri General 10 Delete Conditional Format as Cell Sort & Find & Paste в I A $% Format BIU T Formatting Table Styles Filter Select Clipboard Font Alignment Number Styles Cells Editing г. E1 T H. A B C D E G J 1 Carrier A NPV NPV(4% / 12,C3:C26)+C2 -NPV(4%/12,D3 :D26)+D2 Month Carrier A Carrier B Carrier B 100 0 200 1 60 70 4 2 60 70 5 3 60 70 6 4 60 70 7 60 70 8 60 70 9 7 60 70 10 60 70 11 60 70 12 10 60 70 13 11 60 70 14 - 70-100 12 60 15 13 60 70 16 14 60 70 17 15 60 70 18 16 60 70 19 17 60 70 Sheet Shee 18 eet6 Sheet7 60 70 19 60 70 E Ready 100% 20 21 22. 60 70 w ENG 11:03 AM 60 70 60 70 23 60 70 24 60 70