Apple introduced iPhone 12 last year. Now you have two options to buy the iPhone from Apple. The first option allows you to upgrade to a new unlocked iPhone every year with a monthly payment of $32.45. This option comes with an AppleCare+ (a damage replacement plan). The second option requires you to pay $699 in front with a resale value of $450 after one year and $300 after two years. In this case, you need to pay $99 extra for the AppleCare+ that covers for two years. If you do not care whether you can have a new phone every year or every two years, you can have two choices to own an iPhone. Choice I: you can use the upgrade program; Choice II: you can pay in full in front and purchase the AppleCare+. In two years, you will sell your old phone and buy a new one. Assume that you will continue with the same choice going forward. The appropriate discount rate is 7.2% APR on a monthly basis.

1. (a) What is the present value of the total costs for each choice? Can you compare the PVs to make a decision, and why?

2. (b) Which choice is the best based on the EAC approach?

3. (c) Which choice is the best based on the matching approach?