21. Internal rate of returnPeace of Mind, Inc. (PMI) sells extended warranties for durable consumer goods such
Question:
21.
Internal rate of returnPeace 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
$204.
On average, the repair costs that PMI must cover will average
$103
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
nothing%.
(Round to two decimal places.)The NPV of this project is
$nothing.
(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
0.65%
and a NPV of
$17.77,
PMI should
accept
this project.
B.With a cost of capital of
7%
and an IRR of
0.65%,
and and NPV of
$17.77,
PMI should
reject
this project.
C.With a cost of capital of
0.65%
and an IRR of
7%,
PMI should
accept
this project.
D.With a cost of capital of
0.65%
and an IRR of
7%,
PMI should
reject
this project.