Internal Rate Of Return Peace Of Mind Inc Pmi Sells Extended Warranties For Durable 2457324

P10-15 Internal rate of return Peace of Mind, Inc. (PMI), sells extended warranties for durable consumer goods such as washing machines and re warranty, it receives cash up front from the customer, but later PMI must cover any re- pair 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 war rantys 2 years. If PMI has a cost of capital of 7%, should it offer this warranty for sale?

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’s 2 years. If PMI has a cost of capital of 7%, should it offer this warranty for sale?

Prof. Angela

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