Extended warranties for durable consumer goods

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Reference no: EM131597569

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 22?-year warranty will pay PMI ?$209. On? average, the repair costs that PMI must cover will average ?$101 for each for the? warranty's 2 years. If PMI has a cost of capital of 7?%, should it offer this warranty for? sale?

The internal rate of return? (IRR) for this project is ________%. (Round to two decimal? places.)

The NPV of this project is $____. (Round to two decimal? places.)

If PMI has a cost of capital of 7?%, should it offer this warranty for? sale? (Select the best answer? below.)

A. With a cost of capital of 7?% and an IRR of −2.24?%, and an NPV of ?$26.39?, PMI should reject this project.

B. With a cost of capital of −2.24?% and an IRR of 7?%, PMI should reject this project.

C. With a cost of capital of −2.24?% and an IRR of 7?%, PMI should accept this project.

D. With a cost of capital of 7?% and an IRR of −2.24?% and a NPV of $26.39?, PMI should accept this project.

IS there a formula we can use in excel?

Reference no: EM131597569

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